intu properties plc
Annual report 2017
The intu difference
Welcome to our annual report 2017
Our purpose is to create compelling, joyful
experiences that surprise and delight our
customers and make them smile.
We are a people business and everything we
do is guided by our culture and our values.
We are passionate about providing people
with their perfect shopping experience so
that our retailers flourish.
And it’s this that powers our business, creating
opportunity for our retailers and value for
our investors; benefiting our communities
and driving our long-term success.
What’s inside
Our
difference
page 15
Our growth story
page 12
1
Growing
like-for-like
net rental
income
Our 2018
strategy
see page 10
2
Optimising
our flagship
destinations
Governance
Chairman’s introduction
Board of Directors
Executive Committee
The Board
Viability statement
Audit Committee
Nomination and Review Committee
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities
Financial statements
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 financial statements
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70
71
76
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96
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105
106
107
108
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Overview
Highlights of 2017
Our top properties
Strategic report
Chairman’s statement
Chief Executive’s review
Our 2018 strategy
Our growth story
Investment case
The intu difference
Making the difference
Understanding our markets
Making customers smile
Helping retailers flourish
Our flagship destinations
The sky’s the limit at intu Lakeside
At the heart of communities
Our business model
Relationships
Strategy overview
Key performance indicators
Focus on risk
Principal risks and uncertainties
Operating review
Financial review
Our people
Corporate responsibility
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8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
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48
54
57
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165
169
170
174
175
177
178
C
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Other information
Investment and development property
Financial covenants
Financial information including
share of joint ventures
Underlying profit statement
EPRA performance measures
Financial record
Glossary
Dividends
Shareholder information
Go online intugroup.co.uk/en/investors/
intu-annual-report-2017/
Operating review
page 42
Our people
page 54
Corporate responsibility
page 57
How are we
addressing the
risks to our business?
page 38
Read about our
commitment
to governance
page 60
The underlying
strengths of the intu
business were much
in evidence in 2017 as
shown by our robust
overall performance.”
Read the Chief Executive’s review
page 8
Glossary
page 175
Read more content
in the annual report
Read more content
at intugroup.co.uk
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intu properties plc Annual report 2017
Highlights of 2017
Financial highlights¹
Net rental income2 3
Underlying earnings
£460m
(2016: £447m)
£201m
(2016: £200m)
Our results show good operational and financial performance
in the year
— increase in net rental income of £13 million includes strong like-for-like
recovery in the second half of the year with growth of 2.4 per cent,
delivering full year like-for-like growth of 0.5 per cent
— growth in the second half of the year taking full year underlying earnings
Property revaluation surplus2 3
IFRS profit for the year
to £201 million, ahead of 2016
£47m
(2016: £64m deficit)
Underlying EPS
15.0p
(2016: 15.0p)
£203m
(2016: £172m)
Dividend per share
14.0p
(2016: 14.0p)
NAV per share (diluted, adjusted)
Debt to assets ratio 2 3 6
411p
(2016: 404p)
45.2%
(2016: 43.7%)
Market value of
investment properties2 3 4 5
IFRS net assets attributable to
owners of intu properties plc
£10,529m
(2016: £9,985m)
£5,075m
(2016: £4,979m)
— increase in Spanish valuations, partially offset by a small fall in UK
values, delivers a property revaluation surplus of £47 million
— increased profit for the year by £31 million to £203 million primarily
from the property revaluation surplus (movement of £111 million
against the deficit in 2016), partially offset by one-off £74 million gain
on disposal in 2016
— underlying earnings per share in line with 2016 at 15.0 pence with full
year dividend unchanged at 14.0 pence
— net asset value per share (diluted, adjusted) of 411 pence, an increase
of 7 pence, delivering a total financial return for the year of 5.2 per cent
— substantial cash and available facilities of £833 million on a pro forma
basis (31 December 2016: £922 million), reflecting the £148 million
disposal of 50 per cent of intu Chapelfield, Norwich
1
2
3
Please refer to glossary on page 175 for definition of terms.
Including Group’s share of joint ventures.
See other information section for reconciliations between presented figures
and International Financial Reporting Standards (IFRS) figures.
Including intu Chapelfield which is classified as an asset held for sale.
4
5 Market value of investment properties is based on third party valuations as at
31 December 2017. The scheme document to be issued in connection with the
proposed transaction with Hammerson will contain valuation reports in
accordance with Rule 29 of the Code.
Pro forma for the £148 million disposal of 50 per cent of intu Chapelfield which
completed on 31 January 2018.
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Presentation of information
Amounts are presented including the Group’s share of joint ventures. Underlying
earnings is used by management to assess the underlying performance of the
business and is based on an industry standard comparable measure. It excludes
valuation movements, exceptional items and related tax.
See financial review on page 48 for more details on the presentation of information
and alternative performance measures used
Highlights of 2017
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Our strategic objectives
Optimising asset
performance
Delivering attractive
long-term total property
returns from strong, stable
income streams
— increase in like-for-like net rental income of 0.5 per cent, a third successive year of growth. Former BHS stores
substantially relet with excellent lettings to quality retailers such as Next, Primark and Uniqlo
— signed 217 long-term leases (2016: 214) – 179 in the UK and 38 in Spain – delivering £38 million of annual rent at
an average of 7 per cent above the previous passing rent (2016: 4 per cent) and in line with valuers’ assumptions
— rent reviews settled in the year on average 9 per cent above previous passing rent (2016: 8 per cent)
— occupancy stable at 96.1 per cent (December 2016: 96.0 per cent)
— footfall increased by 0.1 per cent outperforming the national ShopperTrak retail average which fell by 2.8 per cent
Delivering UK
developments
Extending and enhancing
our existing locations to
deliver superior returns
— capital expenditure of £184 million in the year including £63 million on the extension of intu Watford and
£58 million on the acquisition of income generating properties which will form part of future capital projects
— the £180 million intu Watford extension is on target and on budget to open in October 2018 with pre-lets
well advanced
— commenced the £72 million Nickelodeon-anchored leisure scheme at intu Lakeside; completed the leisure line-up
by signing Hollywood Bowl, Puttshack and Flip Out
— near-term committed and pipeline capital expenditure for the next three years of £562 million, with intention to start
intu Trafford Centre (Barton Square – £72 million) and intu Broadmarsh, Nottingham (£81 million) projects in 2018
Making the
brand count
Using our respected
brand to create
compelling experiences
for our customers
— unprompted awareness of the intu brand increased to 26 per cent (2016: 22 per cent), with prompted awareness
increasing to 71 per cent (2016: 63 per cent)
— net promoter score, our measure of customer service, consistent at around 70 throughout the year
— intu Experiences, our dedicated promotions business, generated income of £22 million, equivalent to the rental
income of our seventh largest centre
— intu.co.uk, our premium content publisher and shopping platform, delivered sales for retailers of £9 million,
a 50 per cent increase on 2016
— achieved our 2020 target of a 50 per cent intensity reduction in carbon emissions three years ahead of plan
Seizing the growth
opportunity in Spain
Creating a business of scale
through acquisitions and
development projects
— acquired Madrid Xanadú, one of Spain’s top-10 shopping centres, for a headline price of €530 million,
and introduced TH Real Estate as a 50 per cent joint venture partner
— signed 38 long-term leases delivering £2 million of annual rent at an average of 25 per cent above previous
passing rent
— occupancy stable at 97 per cent and footfall up 1 per cent, which includes the disruption from the intu Asturias
mall redevelopment in the year which has now successfully completed
— revaluation surplus of £98 million in Spain from intu Costa del Sol land (£74 million) and existing centres
(£24 million) with intu Asturias up 11 per cent and Puerto Venecia up 4 per cent, driven by growth in rental values
— at intu Costa del Sol, our proposed 230,000 sq m shopping resort development, approval of the General Plan
of Torremolinos was a major step forward. The remaining consents are expected in the coming months
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intu properties plc Annual report 2017
Our top properties
We own and manage some of the best shopping centres,
in some of the strongest locations, across the UK and in Spain
intu Trafford Centre
intu Lakeside
intu Lakeside offers its loyal
customer base from Essex and the
southeast a compelling mix of
retail, catering and leisure at the
heart of nearly 5 million sq ft of
retail space in the wider Lakeside
basin. The centre is popular
with families – which is why
Nickelodeon has chosen
intu Lakeside for its first theme
park in a UK shopping centre.
Average dwell time
2.5 hours
intu Trafford Centre is the only UK
location other than Oxford Street
where you can find Selfridges,
John Lewis, Debenhams and
Marks & Spencer in one place. As
the prime shopping destination in
the northwest, with a catchment
of nearly 10 million, it is no
wonder it is often the first stop for
retailers as they expand outside
central London.
Footfall
30m
1
**
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16
15
14
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11
10
9
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Asset valuation at
31 December 2017
£10.5bn*
(2016: £10.0bn)
Super-regional centres
65%
2
1.
intu Trafford Centre (£2,324m)
2.
intu Lakeside (£1,417m)
3.
intu Merry Hill (£931m)
4.
intu Metrocentre (£929m)
5.
intu Braehead (£533m)
6. Cribbs Causeway (£240m)
7
6
5
4
3
Major city centres
29%
intu Derby (£458m)
7.
8. Manchester Arndale (£456m)
9.
intu Victoria Centre (£356m)
10. St David’s, Cardiff (£346m)
11. intu Watford (£336m)
12. intu Eldon Square (£323m)
13. intu Chapelfield (£307m)
14. intu Milton Keynes (£285m)
Spanish centres
6%
*
Including Group’s share of joint ventures and assets
held for sale.
** Other UK properties < £200m (£683m).
15. Madrid Xanadú (£235m)
16. Puerto Venecia, Zaragoza (£231m)
17. intu Asturias (£141m)
Market
value
Size
(sq ft 000)
Super-regional centres
intu Trafford Centre
£2,324m
2,018
intu Lakeside
intu Merry Hill
intu Metrocentre
intu Braehead
Cribbs Causeway
Major city centres
£1,417m
£931m
£929m
£533m
£240m
1,435
1,671
2,086
1,123
1,075
intu Derby
£458m
1,300
Manchester Arndale
intu Victoria Centre
St David’s, Cardiff
intu Watford
intu Eldon Square
Spanish centres
£456m
£356m
£346m
£336m
£323m
1,790
976
1,391
728
1,385
Market
value
Size2
(sq m 000)
Madrid Xanadú
€265m
Puerto Venecia,
Zaragoza
intu Asturias
€260m
€159m
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120
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1
The amount presented is on the Scottish ITZA basis;
the English equivalent is £335.
2 Excludes owner-occupied space.
Our top properties
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intu Merry Hill
Madrid Xanadú
intu Merry Hill is the super-regional
shopping centre for the West
Midlands, with a loyal customer
base. It draws 18 million visits
each year and is a key location
for retailers. JD Sports, River Island
and Topshop have recently
upsized, creating flagship stores,
with Next following. Delivering
our plans to improve the dining
and leisure offer will create the
intu Trafford Centre of the region.
Visit weekly
41%
Madrid Xanadú is home to Spain’s
only indoor ski slope which, along
with all the retailers you would
wish for and a 15-screen cinema,
is the retail and leisure destination
for southwest Madrid. In 2018 the
centre will be rebranded intu and
the compelling leisure mix will be
further enhanced by an aquarium
and Nickelodeon theme park. All
this will increase its draw to the
wider Madrid area.
Stores
208
Ownership
Number
of stores
Annual
property
income
Headline
rent
ITZA
ABC1
customers
Key tenants
£93.7m
£450
67%
Debenhams, Topshop, Selfridges, John Lewis, Next, Apple, Ted Baker, Victoria’s Secret, Odeon,
Legoland Discovery Centre, H&M, Hamleys, Marks & Spencer, Zara, Sea Life
212
£28.9m
100%
100%
100%
90%
100%
33%
100%
48%
100%
50%
93%
60%
227
250
217
307
123
153
254
115
203
140
142
Ownership
Number
of stores
50%
50%
50%
208
206
144
£53.2m
£42.4m
£48.1m
£28.1m
£12.9m
£21.3m
£19.5m
£17.0m
£15.8m
£16.1m
Annual
property
income
€12.7m
€12.2m
€8.1m
£360
£200
£280
£2501
£305
£110
£285
£250
£212
£220
£308
House of Fraser, Debenhams, Marks & Spencer, Topshop, Zara, Primark, Vue, Victoria’s Secret,
H&M, Next
69%
48% Marks & Spencer, Debenhams, Primark, Next, Topshop, Asda, Boots, H&M, Odeon
55% House of Fraser, Marks & Spencer, Debenhams, Apple, H&M, Topshop, Zara, Primark, River Island, Odeon
64% Marks & Spencer, Primark, Apple, Next, H&M, Topshop, Hollister, Superdry, Sainsbury’s
80% John Lewis, Marks & Spencer, Apple, Next, Topshop, Timberland, Hobbs, Hugo Boss, H&M, Tesla
46% Marks & Spencer, Debenhams, Sainsbury’s, Next, Boots, Topshop, Cinema de Lux, Zara, H&M
Harvey Nichols, Apple, Burberry, Topshop, Next, Ugg, Hugo Boss, Superdry, Zara, Hollister,
Victoria’s Secret, Paul Smith
57%
57% John Lewis, House of Fraser, Next, Topshop, River Island, Boots, Urban Outfitters, Superdry
John Lewis, Debenhams, Marks & Spencer, Apple, Hugo Boss, H&M, River Island, Hamleys, Primark,
Victoria’s Secret
71%
81% John Lewis, Marks & Spencer, Apple, Zara, Primark, Next, Lakeland, Lego, H&M, Topshop, New Look
60% John Lewis, Fenwick, Debenhams, Waitrose, Apple, Hollister, Topshop, Boots, River Island, Next
Key tenants
El Corte Inglés, Zara, Primark, Apple, H&M, Mango, SnowZone, Cinesa, Bricor, Decathlon
El Corte Inglés, Primark, Ikea, Apple, Decathlon, Cinesa, H&M, Mediamarkt, Zara, Hollister,
Toys R Us
Primark, Zara, H&M, Cinesa, Eroski, Mango, Springfield, Fnac, Mediamarkt, Desigual
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intu properties plc Annual report 2017
Chairman’s statement
Our motivated and experienced staff ensure our centres
remain vibrant and enticing to both customers and retailers
in a fast-changing environment
As I come towards the end of my first
year in the role of Chairman, I have been
phenomenally impressed by the business
and the people who are the driving force
behind its success.
Spending more time in our centres and
meeting staff, as I have done first as a
non-executive director and this year
as Chairman, has confirmed these
impressions. Our vibrant centres are the
best in their regions and are continuously
changing to meet new customer and
retailer needs created by today’s
multichannel retail world. This constant
evolution is directed by our experienced
and ambitious management team
whose drive is shaping the shopping
centre industry.
The last 12 months
The last 12 months have been an
interesting time in our industry –
capital markets have been concerned
by perceived headwinds in retail, from
Brexit in the UK to structural issues in
the US, as well as the impact of online.
Yet throughout this period we have
outperformed against our
operational benchmarks.
Our success has come from ensuring our
centres are the places where people want
to be. Our purpose is to make customers
smile, leading to strong footfall, increased
dwell time and higher spend, and this, in
turn, helps our retailers flourish – resulting
in high occupancy and near record levels
of lettings and tenant investment.
In Spain, we enhanced our platform with
the acquisition of Madrid Xanadú and
advanced our plans for the world-class
intu Costa del Sol shopping resort. In the
UK, we continue to see encouraging
levels of pre-lets on our exciting pipeline
of development projects.
The disposal of 50 per cent of intu
Chapelfield at a price in line with the
December 2016 valuation underwrites
our property values as well as recycling
capital into our development pipeline.
Innovation is engrained in our business,
and using our experience and expertise in
the shopping centre industry, we continue
to define the future of the shopping mall.
intu Accelerate is just one example of this,
testing out a range of pioneering ideas for
both customers and retailers. Online, our
premium content publisher and shopping
platform, intu.co.uk, continues to see
strong growth with sales through the
website increasing by 50 per cent.
Corporate responsibility
I have always believed that behaving
responsibly is fundamental to the best
and most sustainable businesses. It is
especially vital for a retail property
business such as ours where our centres
play a pivotal role at the heart of their
communities. As a long-term investor
in the UK and Spain, we focus on people
and placemaking, and ensure our
initiatives, measured through key
performance indicators, align with
the communities we serve.
Like-for-like net rental income
growth in 2017
+0.5%
(2016: +3.6%)
Reduction in carbon emissions
intensity since 2010
58%
Our vibrant centres
are continuously
changing to meet new
customer and retailer
needs, all directed by
our experienced and
ambitious management
team whose drive is
shaping the shopping
centre industry.”
John Strachan
Chairman
Chairman’s statement
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I am pleased to report that the measure
of our community investment, gross
value added, remains stable on a like-for-
like basis at £4.6 billion this year, and we
have reached our 2020 target for a
50 per cent reduction in greenhouse gas
emissions three years early.
As a long-term business and a major
employer in many of the regions where
we operate, we have an important role
in the future and the wellbeing of our
communities. We take our responsibilities
seriously, whether that is ensuring we
reduce our environmental impact or
helping local people by working with
a charity to provide prom dresses for
students. Recognising the importance
of locally created and relevant projects,
my Chairman’s prize for 2017 has gone
to The Bus Shelter MK, a project to
provide short-term accommodation
for homeless people in Milton Keynes
in a converted double-decker bus.
Our people
I would like to convey my warmest
thanks to my colleagues on the Board
and to all our staff for their commitment
and creativity. As I said in my introduction,
I am remarkably proud of our people,
from apprentices to senior managers,
who day in and day out deliver the
intu difference that sets us apart from
the competition.
Dividend
Your Directors are recommending
a final dividend of 9.4 pence per share,
bringing the total amount paid and
payable in respect of 2017 to 14.0 pence,
unchanged from the 2016 dividend.
A scrip dividend alternative may
be offered.
Looking to 2018
As David discusses in his Chief Executive’s
review, we are refocusing our strategic
objectives. They are to deliver growth in
like-for-like net rental income, building
further on the previous three years of
growth, all underpinned by operational
excellence. Our development
programme, focused on flagship
destinations and financed through
astute capital recycling and allocation,
will add further organic growth.
The Bus Shelter MK
This unique partnership with intu Milton
Keynes raised money to convert a bus to
provide short-term accommodation for
homeless people in Milton Keynes
Creating a pan-European portfolio
In December we agreed a recommended
all-share offer for the company by
Hammerson. The boards of Hammerson
and intu believe that there is a compelling
strategic rationale for the acquisition,
which will bring together high-quality
retail property portfolios and combined
expertise to create a leading European
retail REIT with a strong income profile
and superior growth prospects.
Both boards believe that, following the
acquisition, the enlarged group will be
better placed to enhance its position in
its geographic markets and across its
retail formats, with a more efficient and
adaptable platform allowing it to respond
to fast-changing consumer preferences
and retail trends.
The transaction is subject to certain
approvals and is not expected to complete
until late 2018.
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intu properties plc Annual report 2017
Chief Executive’s review
intu focuses solely on regional shopping centres
in the UK and Spain
Our performance in 2017
The underlying strengths of the intu
business were much in evidence in 2017
as we have recorded a robust overall
performance, confounding the external
gloom and negativity in pre-Brexit UK
about retail and retail property, and
showing the success of our asset
management initiatives and
strategic positioning.
Our underlying earnings per share were
steady at 15.0 pence; we grew like-for-like
net rental income by 0.5 per cent, within
our original guidance 12 months ago;
and net asset value per share, helped by
a tremendous performance from the
Spanish business, increased from
404 pence to 411 pence.
We delivered on each of our four core
objectives for 2017:
— asset performance was resilient in
the UK and buoyant in Spain, with the
clear message from key performance
indicators, such as lettings, occupancy,
footfall and dwell time, that intu is in
fine shape
— the investment programme in the UK
moved on at pace with expenditure in
the year of £184 million. The pipeline
for the next three years amounts
to £562 million, with plenty of
opportunity beyond that date.
In addition to the £180 million
intu Watford extension, opening in
2018, significant projects are underway
at major centres, such as intu Lakeside,
intu Trafford Centre and intu Merry Hill
— the awareness and importance of
the intu brand has continued to
grow. Five years on from launch, we
can clearly see the advantages of a
strong brand for a shopping centre
business such as ours. Among these
advantages we would include superior
customer service, refreshing changes
to the centres’ physical and digital
environments and new and innovative
sources of revenue
— we continued to seize the growth
opportunity in Spain. We acquired
Madrid Xanadú in the year, a centre
full of growth opportunities and an
ideal fit for our shopping resort model
in Spain, with a Nickelodeon theme
park attraction and aquarium under
construction, to add to the existing
indoor ski slope
Outlook and 2018 strategic objectives
The environment for the business is
likely to remain challenging as the
UK continues through the Brexit
negotiations. Our shopping centres have
not been immune to the UK’s relatively
sluggish economic performance.
Decision-making about investing in
the UK has inevitably been impacted
in the pre-Brexit period and domestic
consumers have been adapting to
fluctuations in their discretionary
spending capacity.
The 2017 results are, however, a
considerable endorsement of the
underlying strength of the intu business
and our strategic objectives for 2018
build on those we have pursued in
the last few years. They are:
— growing like-for-like net rental income
— optimising our flagship destinations
— delivering operational excellence
— making smart use of capital
Front of mind for investors is the changing
mix of online and in-store sales and how
that might affect demand for physical
space, hence our particular focus on the
basic measure of growing like-for-like net
rental income. At intu, we are still seeing
key retailers taking more space, and
investing for the long term in our centres,
as they recognise the footfall we deliver
and our ability to create more reasons
for customers to visit and stay longer.
The underlying
strengths of the intu
business were much in
evidence in 2017 as
shown by our robust
overall performance.”
David Fischel
Chief Executive
Chief Executive’s review
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Our energies are also concentrated on
ensuring all our centres evolve with
consumer and retailer needs, so that they
deliver sustainable growth. Keeping our
centres at the forefront of people’s minds
requires continual focus on bringing in
new attractions, be it a key retailer or
restaurant or a compelling leisure
attraction. In addition to delivering our
target return hurdles, our projects
innovate what we offer our customers
and keep us at the leading edge of the
shopping centre industry.
Nowhere will this be more obvious
than at our ground-up scheme in
Spain, intu Costa del Sol, where we
have the opportunity to create a world-
class centre, delivering our signature
shopping resort product and
showcasing our expertise.
Our culture
In one way, we are a simple business,
with a focus on creating the best shopping
centre experience. Our culture is driven by
a single-minded purpose to make our
customers feel better about life through
a visit to one of our centres.
Utilising technology
The retail industry has been embracing new
technology like never before, as retailers
increasingly see tech as a catalyst for
creating new business opportunities,
rather than a threat. Retailers are finding
ingenious ways to shape their technological
infrastructures, define their online presence
and drive engagement with customers.
At intu, we adapted and changed our
business model in 2013 to offer a seamless
multichannel proposition. This year we
began working with seven tech start-ups
as part of intu Accelerate, our incubator
programme, which has been trialling a
range of new ideas in our shopping centres,
from robotic customer services assistants
to an online personal shopper service.
And while few new shopping centres are
being built in the UK, we aim to be on site at
intu Costa del Sol in Spain next year to build
a groundbreaking shopping resort that
takes everything we have been putting into
practice over the last few years in the UK to
a whole new level.
Read more about our innovation
on page 23
Operational excellence is a clear
differentiator in both the UK and Spain.
Our knowledge and insight are important,
as is our culture and living our values –
bold, creative and genuine – which
underpin everything that we do. Our
culture is embodied by our brand which
has become recognised throughout the
shopping centre industry, with intu a
byword for fantastic customer service,
motivated and enthusiastic staff,
expert mall operations and good
corporate citizenship.
Our skill in this area is recognised by the
partners we have brought into the
business in the last few years, including
CPPIB, LaSalle Investment Management
and TH Real Estate. The ability to partner
on assets allows us to astutely recycle
and allocate capital to deliver superior
returns. With over £800 million of cash
and committed facilities, our financial
position is very sound.
This is an important part of the intu
difference and a cause of our success.
We encourage all our employees to look at
things differently and creatively, to consider
carefully and then act boldly and genuinely.
Total financial return
+5.2%
UK near-term development pipeline
£562m
10
intu properties plc Annual report 2017
Our 2018 strategy
Our results highlight the underlying strength of the intu business based on
the strategic objectives we have pursued over the last few years. For 2018,
we are enhancing our strategy to build on this strong base
Over the last three years, we have
focused on four strategic objectives
and consistently delivered against these
with 2017 being another strong year
of results. These objectives have seen
us optimising our assets and growing
like-for-like net rental income, delivering
award-winning developments, building
a business in Spain and maximising our
operations through our brand.
In Spain, we now own three top-10
centres and are on target to begin the
construction of intu Costa del Sol. Our
challenge is no longer to build a business
in Spain – we are now an established
national player. Our brand is five years old
and is a recognised market leader with a
distinctive approach and clear purpose.
Knowing this, and with an eye on the
potential challenges facing us in a
changing market, we are tilting the
emphasis of our objectives to increase
our focus on the growth and continuing
excellence of our flagship destinations
in the UK and Spain. We set out our
objectives in more detail below.
1
Growing like-for-like net rental income
2
Optimising our flagship destinations
Like-for-like net rental income growth is our key income measure.
Given our relatively low cost base and fixed finance costs, growing
our net rental income drives earnings and ultimately dividend
and total property return.
By delivering a compelling mix of retail, catering and leisure, each
of our flagship destinations generally draws footfall of 20 million
or more and the average customer stays for over two hours.
We use our insight, expertise and innovation to ensure that
they are the destinations of choice for our customers.
Priorities in 2018
— grow like-for-like net rental income, currently expected to be in the
range of 1.5 to 2.5 per cent
Priorities in 2018
— ensure the leisure extension at intu Lakeside remains on target
— complete the aquarium and Nickelodeon leisure attractions at
— deliver new lettings ahead of previous rent and increasing rents
Madrid Xanadú
through the rent review cycle
— reduce vacancy rate year-on-year
— commence the redevelopment and repositioning of Barton Square,
further improving the tenant mix at intu Trafford Centre
— complete the final planning consents at intu Costa del Sol
Our 2018 strategy
11
1
Growing
like-for-like
net rental
income
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
4
Making
smart use
of capital
Our
customers
2
Optimising
our flagship
destinations
3
Delivering
operational
excellence
Our strategic focus going forward
Our overall business model remains unchanged. Our
assets and resources and what we do remain the same
but the strategy that delivers sustainable value for our
shareholders and stakeholders has been adjusted to
better represent today’s opportunities and challenges.
Our assets and resources
We have unique assets and resources that
provide the foundations for our business
What we do
We apply the intu difference – our specialist
knowledge, expertise and market insight – to
create the most popular shopping centres by:
Our centres
National presence with high
quality retail and leisure
destinations visited by half the
UK’s population each year
See top properties on page 4
Our employees
Professional, empowered and
motivated teams that are
specialists in their fields
See our people on page 54
Our brand
Respected shopping centre
brand focused on enriching
the customer experience
both in centre and online
on page 15
Our relationships
Enduring, creative and
collaborative relationships
with retailers, customers,
employees, partners
and communities
See relationships on page 32
p g
p
making customers smile
Our insight and management of centres
attract customers more often, for longer
mix of retail, leisure and catering alongside
our distinctive brand proposition
helping retailers flourish
Our high-footfall locations, flexibility and
strong brand give retailers the confidence that
they will trade successfully with intu, which
drives rental income and capital growth
See understanding our markets on page 18
Our financial strength
Robust capital structure provides capacity to deliver
our objectives from a range of funding sources
See financial review on page 48
The value we add
We deliver sustainable value for our shareholders and stakeholders
Our shareholders
Strong stable income and capital growth
Our customers
Compelling experiences
Our communities
Significant economic contribution
5.2%
total financial return
70
p
average net promoter score
g
nb6.4£
g
gross value added
Our retailers
Environments that help retailers flourish
Our people
Professional and empowered
Our environment
Operational and environmental efficiency
+2.9%
outperformance of national
footfall benchmark
14/14
all intu centres awarded Investors in People
gold standard
58%
reduction in carbon intensity since 2010
How our strategy helps
us create value
From 2015 to 2017, we
focused on these
strategic objectives
to create a competitive
advantage and deliver
long-term value
1
Optimising
asset
performance
4
Seizing the
growth
opportunity
in Spain
Our
customers
2
Delivering UK
developments
3
Making
the brand
count
See the strategy overview
for more details on how
we achieved this in 2017 on
page 34.
For details of our 2018
strategy see page 10
Underpinned by our culture
Behaving responsibly
p
See more on corporate responsibility on page 57
p g
p
y
l
Li i
Living our values
See more on our culture on page 54
p g
See our business model on page 30
i
d
Being a good employer
p op
See more on our people on page 54
p g
l
3
Delivering operational excellence
4
Making smart use of capital
Making customers smile and helping retailers flourish is what we do, and
operational excellence is how we measure our success. From a customer’s
point of view, this is measured by our brand metrics, including net
promoter score and brand recognition. For our retailers, it relates to
how many customers we attract and how long they stay in our centres.
For our wider communities, it is about being a good corporate citizen.
As the leading owner, developer and manager of shopping centres in
the UK and Spain, we and our assets are well respected throughout the
industry. This means we can access capital and attract partners to
increase focus and achieve superior returns at our flagship locations.
Priorities in 2018
— ensure we continue to outperform footfall benchmark
— enhance brand recognition and consistency of net promoter score
— build on digital platform and continue to grow sales through
Priorities in 2018
— ensure facilities available for the development pipeline – maintaining
loan to value in the 40 to 50 per cent range
— continue the recycling of capital to deliver higher returns
the website
from developments
— communicate, and start working towards, our 2030 corporate
— deliver financing for the intu Costa del Sol development
responsibility strategy
12
intu properties plc Annual report 2017
Our growth story
We have a strong pipeline of organic growth opportunities for the next decade in the UK
and Spain. We are on site with extensions at intu Watford and intu Lakeside and approaching
the required level of tenant demand to start several other major projects
Near term
Over the next three years we will focus on
projects with proven tenant demand. With
significant levels of pre-letting, we are on
site at intu Watford and intu Lakeside and
expect to start several other near-term
projects shortly.
intu Watford
This leisure-led extension is on site and
on track for opening in October 2018.
The transformation will be anchored by
a nine-screen Cineworld IMAX cinema,
10 restaurants and a Debenhams department
store and includes a refurbishment of the
existing malls. Pre-lets stand at around
two-thirds, by space, with new lettings
including Hollywood Bowl and Superdry.
intu Lakeside
The extension, anchored by a Nickelodeon
theme park, will bring additional leisure and
catering brands to intu Lakeside, increasing
the catchment and dwell times of the centre.
Hollywood Bowl, Flip Out and Puttshack
complete the leisure attractions, which along
with 11 new restaurants will further enhance
this family-oriented extension.
Overview
intu Watford
intu Lakeside
intu Trafford Centre
Active asset management
Total committed
intu Broadmarsh, Nottingham
intu Merry Hill (leisure)
intu Milton Keynes (phase 1)
Active asset management
Total pipeline
Total UK
Spain
Total
Total
80
57
72
55
264
81
70
15
132
298
562
397
959
Cost to completion (£m)
2019
2020
3
5
47
5
60
40
–
–
45
85
145
157
302
–
–
–
–
–
30
70
15
42
157
157
217
374
2018
77
52
25
50
204
11
–
–
45
56
260
23
283
Our growth story
13
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
intu Trafford Centre (Barton Square)
The expansion and transformation of Barton
Square at intu Trafford Centre will be anchored
by Primark and provide a fashion offer for the
first time at Barton Square. Enclosing the
courtyard will enable trading from two levels
and add an additional 110,000 sq ft of
retail space.
intu Broadmarsh
The second phase of our Nottingham
vision is to redevelop the 500,000 sq ft
existing centre to provide a complementary
offer to that of intu Victoria Centre. The
redevelopment will focus on new brands to the
city, with a cinema and restaurant-led upper
level and convenience-driven lower level. The
Light cinema and Hollywood Bowl will anchor
the leisure element of the redevelopment.
intu Costa del Sol
With final planning consents expected
shortly and strong demand from retailers,
we expect to be on site with this shopping
resort development in the next 12 months.
intu Costa del Sol will have a high proportion
of leisure and will be a must-visit destination
for both residents and tourists from the
whole of the region.
Active asset management
Potential beyond 2020
Our active asset management capital expenditure projects offer
attractive returns, with stabilised initial yield on costs of 6 to 10 per cent.
These projects vary in scale but all focus on improving the customer
experience, whether it is retail, catering or leisure. Committed examples
include the new Next flagship stores at intu Metrocentre and intu Merry
Hill, as well as a new restaurant quarter at Manchester Arndale. In the
pipeline we have plans at intu Merry Hill to increase the catering and
leisure, embedding its position as one of the UK’s best shopping centres.
Beyond 2020, we continue to work on securing the required planning
approvals and tenant demand to start £2.5 billion of projects in the UK
and Spain which we would expect to deliver stabilised initial yields of
around 7 per cent. We have the required planning for extensions to
intu Lakeside, intu Victoria Centre, intu Braehead and intu Milton Keynes
and are at earlier stages of the approval process for the extension at
Cribbs Causeway. These plans aim to enhance local prosperity through
job creation in both the construction and operating phase.
intu Merry Hill
intu Milton Keynes
14
intu properties plc Annual report 2017
Investment case
We use our experience, expertise and unique insight to
implement our strategy and deliver shareholder returns
Experience and expertise
— owner, developer and manager of some of the best shopping centres
in the UK and Spain
— a much-admired and respected brand
— providing in centre and online customer experience
— talented, motivated and empowered employees focused on delivering
exceptional customer experience
— robust capital structure with access to a wide range of funding sources
See business model on page 30
Unique insight
— pureplay-focused shopping centre owner
Strategy
— dynamic operator at the forefront of an evolving retail environment,
understanding the multichannel requirements of retailers
— unique insight into customer trends and demands for the perfect
shopping and leisure experience
— connecting retailer requirements with customer demands to deliver
compelling shopping experiences
See key market trends on page 18
— combining our expertise and insight
— creating compelling experiences for our customers
— helping our retailers flourish
— operating a responsible and sustainable business, that contributes
to our communities
See our 2018 strategy on pages 10 and 11 and our 2017 strategy overview
on pages 34 and 35
Shareholder returns
— long-term total property returns from our high-quality centres,
an attractive asset class
— strong, stable income streams from long-term lease structures
— development potential and capital appreciation
The intu difference
Making the difference
15
How we make
the difference…
Building on
our success at
intu Lakeside
page 26
Understanding
our markets
page 18
Making
customers
smile
page 20
Helping our
retailers flourish
page 22
16
intu properties plc Annual report 2017
Making the
difference
With the whole business centred
around our customer, we
bring together our experience,
insight and expertise to create
compelling experiences, in centre
and online, which deliver real
results for our retailers, caterers
and leisure operators
intu in numbers
400m
customer visits in 2017
3
of Spain’s top-10 centres
73
RepTrack reputation score
1/2
of UK population visit
an intu centre each year
1m
social media followers
70
consistently high net promoter score
26%
spontaneous brand
awareness
£4.6bn
total economic contribution
in 2017
58%
reduction in carbon emission
intensity since 2010
100%
waste diverted from landfill
Our purpose is to put
a smile on the face of our
customers. We want them to be
happier after a visit to our centres
than when they walked through
the door. We know that happy
customers mean happy retailers.”
David Fischel, Chief Executive
Our statistics are impressive but it
is what we do with them that really
makes the difference
Our insight and research programmes help us
understand what motivates customers to visit
their local intu, stay longer and return more often. We
then combine our expertise with our brand to attract
the best retailers, the most sought-after brands and
exciting immersive experiences to do just that.
The intu difference
Making the difference
17
We have 20 million sq ft of
retail, leisure and catering
space in the UK
A culture of
Driven by our values of bold, creative
and genuine we encourage effective
experimentation both by individuals
and through group initiatives such
as intu Accelerate and Green Lab.
Employee innovation is captured through
our Ideas Funnel and success is recognised
and rewarded through Win Your Dream.
We are on course to being Spain’s
top operator of super-regional
shopping centres
intu centres
development sites
18
intu properties plc Annual report 2017
Understanding
our markets
As a leading shopping centre operator in the UK,
we understand the trends that affect our industry
and the impact they will have on customers and retailers
Anticipating customers’
changing needs
Our customers want to be able to shop
when they like through different channels.
However, the store is king, and the place
shoppers spend the vast majority of their
money. They like the ability to see, touch
and try on the full range from all key
retailers in one location, or as part of a
day out, to confirm online research and
pick up products bought online.
Economic uncertainty
For customers there is pressure on
disposable income from inflation
outpacing wage growth, for retailers
there are challenges from inflation on
the cost base and dealing with the
structural shift to online. Brexit brings
further uncertainty and retailers need
to ensure they get their required returns
from new stores.
Innovation
In the same way that retailers innovate
for today’s market, innovation in shopping
centres delivers better ways of doing
things, reducing costs and building a more
sustainable business. Examples of how
intu is meeting the innovation challenge
can be found throughout this document.
The power of data
The ability to gather and understand
data, then act quickly on the conclusions
drawn, is critical in today’s world where
disruptors look for gaps in the market.
Owning our digital infrastructure, and
hence owning the data, means we can
maximise the power of our data to the
benefit of our customers and retailers.
Good corporate citizen
Behaving responsibly and thinking long
term about the environment and local
communities around our centres are
important in our future planning.
Retail
tren ds
New retail anchors
The retailers that attract customers to a
centre are changing. Super retailers, such
as Primark and Next, are increasing their
store size, while the likes of Inditex and
H&M are taking additional stores for their
portfolios of brands. Customers are
drawn to these retailers because
they offer their full ranges in our
flagship destinations.
Market overview
Retail is a dynamic industry, and retailers
the world over are used to dealing with an
ever-changing environment. Right now
they are facing economic and structural
challenges which are speeding up the
rate of change of their online and
in-store strategies.
The store, and its value, is still integral
to these strategies. Retailers are
continuing to invest in flagship stores in
locations that offer a compelling mix of
retail, catering, leisure and experience
and deliver high footfall. That is why
we continue to be a key landlord for
our retailers.
The intu difference
Understanding our markets
19
Informed by data
We have many touchpoints with our
customers. Our experience and
expertise allow us to critically analyse
and interpret what they tell us so we can
deliver days out that make them smile.
Our data covers the whole customer
journey, from customers’ website and
digital behaviour before they go to our
centres, through to what they thought
of their experience while they were there.
Our comprehensive data consolidation
project is bringing this information
together to enhance our understanding
of our customers. We take a responsible
approach to our data and are using the
opportunity afforded by this project to
ensure all our data meets General Data
Protection Regulations requirements.
We are piloting new ways to employ
both our own data and that of third
parties more effectively. For example,
we are testing the use of anonymised
information of wifi usage through
our digital infrastructure, in order to
understand customer flow patterns
during busy times, so we can deploy
teams more swiftly.
By segmenting our customer data
according to demographics, shopping
habits and location we can tailor the
mix of retail, leisure and great offers,
and ensure our facilities meet their
expectations, so everyone has a
compelling experience every time
they come.
Annual sources of data include:
26m
website visits
873,000
social media interactions
20,000
Tell intu feedback
questionnaires
9m
in centre wifi connections
2.7m
email subscribers
720,000
gift cards
2,000
customer Shopper View panel
International
Despite the challenging headwinds
facing retailers, the UK is still an attractive
market for international retailers who
focus their expansion plans on high
footfall, experience-based locations.
Demand is truly global, with Victoria’s
Secret from the US, Australian
accessories brand Lovisa and Polish
cosmetics store Inglot all expanding.
Brands
As direct access to new customers
becomes harder, brands are considering
different routes, with shopping centres an
attractive option as they offer high levels
of footfall and long dwell times. Global
brands such as Nespresso, Mercedes and
Tesla are following this route and we are
having conversations with fast-moving
consumer goods companies.
Leisure
From trampolining and minigolf to skiing
and aquariums, brands such as Puttshack,
Flip Out and Gravity are increasingly
taking space in our flagship centres,
to reach the leisure-hungry customer.
Leisure and experience play a key role
in what people decide to do with their
free time and they want to enjoy such
attractions at a place convenient to them.
20
intu properties plc Annual report 2017
Making
customers
smile
Bringing joy to our customers and making
them smile helps retailers flourish and
creates new business opportunities for us,
driving returns for our shareholders
The customer at the heart of
everything we do
Creating the intu brand in 2013 was a bold move, putting the
customer at the heart of everything we do for all our staff.
Our commitment to this strategy over the last five years has
paid off with the success of the brand evident throughout the
business. Our reputation, awareness and consideration scores
are now the highest in the industry.
The brand works equally well in Spain. Since we launched the
brand at intu Asturias there has been a 135 per cent rise in
net promoter score (NPS). We will be rebranding both Puerto
Venecia and Madrid Xanadú in 2018 to repeat that success.
Using experiences to drive brand choice
Research helps us understand what makes our customers smile,
and we use what we discover to create unique experiences
to do just that. Three big campaigns in 2017, described below,
delighted millions of customers while generating international
PR that built brand awareness both in the UK and around the
world. This publicity helps us become the top choice when
customers think about where they want to spend their shopping
and leisure time.
Discovering money turns out to be
one of the most joyful surprises.
Cue our spring release of hundreds
of origami birds worth £10 each
around our centres.
Our customers love ice cream
– so during the school summer
holidays, we created and
unveiled the world’s smallest
ice cream van, giving out free
ice cream to shoppers, to their
great delight.
Using science we researched
what made the happiest
Christmas song – and then
had one written which was
performed at our centres to
help get our customers into
the Christmas mood.
Brand awareness
71%prompted
26%spontaneous
37%consideration
The intu difference
Making customers smile
21
Events with a difference
Events with a difference are a key element of
our brand promise – they provide compelling
experiences for customers and attract people
from further who stay longer.
As well as collaborating with some of the biggest
names in entertainment, from Sony Pictures to
Playmobil and Nickelodeon, we run a biennial
touring exhibition.
We kicked off in 2014 hosting the world-renowned
Elephant Parade for its first ever national touring
event. In 2016 it was the Big Birdhouse Tour with the
RSPB and the 2018 tour will embrace biodiversity.
Our strategy is not just about big set
pieces – every centre has an
events programme designed
around its retailers and
audiences to celebrate
local, national and
international events.
Events with
a Spanish twist:
Dancers at
Puerto Venecia’s
summer ‘Baila’
Nickelodeon All Stars
One of our star turns in 2017 was the Easter campaign with
the Nickelodeon All Stars. The intu tour by the PAW Patrol
crew gave us a national profile through the Nickelodeon channel
and brought fantastic activities for 25,000 children – making intu
the first choice for families during the school holiday period.
© 2018 Spin Master. All Rights Reserved.
© 2018 Viacom International Inc. All Rights Reserved.
Joy jar goes digital
We have loved lighting up
children’s faces with an
unexpected treat from our joy jar.
So now we are taking our random
acts of kindness concept online,
with the digital joy jar pilot at intu
Lakeside. Aimed at the grown-ups
this time, we use social media
monitoring tool Local Measure
in a geofenced area to spot people
who are sharing their celebrations
online. If they opted in, we can
reply to their message with
a positive response, offering
them an intu treat.
The pilot has created such surprise
and delight that we are rolling the
scheme out across all our centres
in 2018.
22
22
intu properties plc Annual report 2017
intu properties plc Annual report 2017
Helping
retailers flourish
Unique model helps retailers flourish
Our leasing-experiential-digital (LED) model ensures that
retailers working in partnership with intu can reach their
true potential across all intu channels.
Leasing – an integral part of successful retailing remains
the store. In taking space with us retailers know that they are
in safe hands – our centres are continuously improving and
developing, always destinations where customers want to be.
Experiential – our tailor-made promotional services model
is designed to help retailers and brands reach their true
potential. In centre, this can include pop-up space on the
mall, promotional events and digital media advertising,
all with the aim of delivering improved recognition and
ultimately increased sales.
Digital – with a transactional website that has an annual
digital audience of 26 million, we can help retailers meet
their multichannel aspirations. From volume sales through
our online shop and dedicated emails to our engaged
‘shopper’ community, along with brand awareness through
strong editorial content across our online and social media,
we actively support our retailers’ growth.
Not only have we redefined the customer experience, we are
redefining the tenant experience too. Through our LED model,
we offer a multichannel approach that truly supports their
retail strategies.
Jo Malone
The perfumier tried a pop-up
store at intu Lakeside in the
run-up to Christmas 2017.
With gold package LED
support, they enjoyed such
good results they have signed
a 10-year lease.
Three
The mobile operator’s
sponsorship of our student
nights gave them access to
120,000 students across 11
intu centres – and a 149 per
cent rise in SIM-only sales.
Gourmet Burger Kitchen
Working with Gourmet Burger
Kitchen we developed a
multichannel campaign to
increase awareness and drive
sales. The campaign reached
350,000 people and received
17,000 clickthroughs, driving
over 5,000 customers into
their restaurants.
The intu difference
the intu difference
Helping retailers flourish
23
23
Digital success
Back in 2013 we introduced our
new affiliate website, intu.co.uk,
enabling retailers to promote their
products to our digital audience. It is
now one of the country’s leading
affiliate websites, used by over
500 retailers and generating £9 million in sales from
5.7 million visits. Its latest functionality uses AI-powered
visual search to enable shoppers to pick an item and then
instantly be shown similar products from across all
our retailers.
Shop Insider, our digital magazine, creates content around
topical shopping behaviours and rising social trends, that
helps the reader eat, shop and save. In 2017 Shop Insider
had 1.4 million readers and our inhouse editorial team were
commissioned to produce content on behalf of 37 retailers
and brands, including John Lewis, MAC, Debenhams and
Marks & Spencer. Retailers can also get access to our
one million social media followers through bespoke paid-for
social content.
Just as retailers are choosing our shopping centres to
promote their brands, they are now realising the benefits of
using digital content to build their brands. And it has given us
an edge with pureplays too – digital brands such as Boohoo
and ASOS are some of intu.co.uk’s most prolific clients.
1.8m
Shop insider
page
views
£9m
retailer
sales
5m
clicks to
retailers’
websites
New collaborations
As we build our presence in Spain, we and our
tenants are benefiting from opportunities across
both the UK and Spain. We have seen enhanced
collaboration for UK-based retailers in our Spanish
centres with the likes of Five Guys and Quiz taking
some of their first spaces in Spain at intu centres
and many discussions starting for intu Costa del Sol.
For Spanish companies looking to grow in the UK,
we have enhanced our relationships. Grupo Parques
Reunidos, the Spanish entertainment operator,
is launching its first venture in the UK, with a
Nickelodeon theme park at intu Lakeside. It is
also constructing one at Madrid Xanadú.
Improving our business every day
At intu, if we can find a way of doing things better we will,
and when it comes to supporting our tenants, we harness
our thirst for innovation to drive cost efficiencies and make
their lives easier. Insurance charges have been trimmed by up
to 20 per cent, thanks to our proactive approach to reducing
risk. We continue to cut waste costs while assuring our
tenants that their waste is being treated to the highest
environmental standards. Our energy procurement strategy
buys ahead, providing greater cost certainty to our tenants.
This is business as usual at intu, as is our constant search for
new ways to run our business, supporting exciting start-up
businesses that offer significant technological and process
innovation in property and retail. Our work with Invida to
design and implement an entirely new cloud-based software
platform to support lifecycle management will revolutionise
the facilities management industry. We are also supporting
start-up enModus, whose groundbreaking communications
technology, Wattwave, can transform any industrial,
commercial or retail property into a smart building, simply by
connecting all devices to the cloud via the existing power line.
intu Accelerate
Through intu Accelerate we worked with some of the
smartest minds to answer some of the questions facing
the retail and leisure industry today. We chose
y. We chose
across
seven start-ups who ran live trials across
ate
our business to test and demonstrate
e the
the potential of their ideas to shape the
future of retail. Four of the best were:
ere:
botsandus – intelligent and friendly robot
ly robot
rs around
assistants (right) to guide customers around
and help retailers promote their stores
ores
GoInStore – live videos to promote retailers’
e retailers’
products to online customers
Infraspeak – efficient building
management using predictive sensors,
sors,
user-friendly apps and powerful software
ftware
WoraPay – a multiretailer app
allowing customers to order ahead
to beat the queues
24
intu properties plc Annual report 2017
What are our flagship destinations?
Our flagship destinations are the shopping centres where
retailers aspire to be, both now and in the future. They
offer them consistently high footfall combined with a long
dwell time and we know the longer people stay, the more
they spend. This is why they have their biggest and best
stores in these locations and have the confidence to invest
in these stores for the long term.
s As retail evolves, the demand for space
n
in flagship destinations increases. These
locations offer a compelling mix of retail,
o
catering and leisure for customers and
i
deliver consistently high footfall for retailers
t
a
n
i
t
s
e
d
p
i
h
s
g
a
fl
r
u
O
And it is a constant evolution. We have a masterplan for every
centre and the expertise and insight to ensure these flagship
centres remain at the forefront of both retailers’ and
customers’ minds for years to come. Trends change and new
disruptors emerge, but we are always working to improve
our offering so we remain at the cutting edge of shopping
and leisure.
For the shopper, they offer a mix of retail, catering and leisure –
a day-out destination where they can shop, eat and be
entertained. Customers are willing to spend time travelling
to these destinations and once there they know they will have
easy access to all the best stores offering the retailers’ full
ranges plus a wide variety of leisure to keep everyone happy
for the day.
Their locations out-of-town, with at least 10,000 free car
parking spaces, provide an appealing variety of leisure –
whether it is an aquarium, an indoor ski slope, zip wires,
trampoline parks or theme parks such as Legoland Discovery
Centre or Nickelodeon, or the already successful cinemas
and bowling – there is something for everyone.
Leading the way
with leisure
The first…
…aquarium in a UK
…aquarium in
shopping centre at
shopping cen
intu Trafford C
intu Trafford Centre
…indoor ski slope
in a Spanish mall
at Madrid Xanadú
…Nickelodeon in a
UK shopping centre
at intu Lakeside
…shopping resort
concept at
Puerto Venecia
The intu difference
Our flagship destinations
25
The numbers
Our UK flagship destinations:
have nearly half the
UK’s population living
within a 70-minute
drive time
70
minutes
transact around
2 per cent of the
UK’s in-store
non-food sales
2%
have footfall of over
20 million each,
with an average
dwell time of
over two hours
2
hours
x30
and loyal
customers who
visit on average
30 times a year
Spanish shopping resorts
In Spain, our flagship destinations are
shopping resorts. As we compete for
people’s free time, we want to provide
something for every member of the
family, offering variety and surprise.
Puerto Venecia was the first in its class
and epitomises the shopping resort
concept. Madrid Xanadú will join the
club with the opening of the aquarium
and Nickelodeon theme park and our
of intu Costa del Sol
development of intu Costa del Sol
will take the design
esign
to the next level.
vel.
intu Costa del Sol
In 2018, we expect to have the final
planning consents and required
pre-lets to start the development
of intu Costa del Sol, near Málaga.
Even now, pre-construction, it is being
talked about as a world-class centre.
The site is ideally located to draw
residents and holidaymakers from
the whole Costa del Sol region. The
design ticks all the boxes of a flagship
destination, and more. This shopping
resort will deliver our signature product
and showcase our expertise, taking the
best of our existing centres plus adding
the extra qualities that will define
leading centres over the coming years.
26
intu properties plc Annual report 2017
The sky’s the limit
There is always something new to see at intu Lakeside from the
latest retailers to the best leisure attractions around thanks to a
masterplan that, combined with our expertise, keeps the centre
at the cutting edge of customers’ expectations
intu Lakeside was state of the art
when we built it in 1990, one of the
first out-of-town shopping centres in the
UK, and it remains one of the top retail
destinations in the country with 20 million
visits a year and over 250 shops and
restaurants, delivering retail sales of over
£0.5 billion a year and dwell time which
has risen to nearly 2.5 hours.
It’s no wonder it stays so popular – as a
company we take a long-term approach,
always looking 10, 20 years into the
future to make sure our centres remain
ahead of our customers’ and tenants’
expectations. Over the years we have
made astute land acquisition decisions
that now give us many options for
expanding the range of attractions to
drive dwell time and frequency.
Above all, our talented people know how
to make the shopping experience special.
We have a knowledgeable local team,
supported by experienced national
experts, who use their understanding
of the shopping centre environment in
general, and our customers in particular,
to create an iconic destination, lauded
by celebrities and locals alike – thousands
of social media mentions each month
show just how much intu Lakeside
means to its shoppers.
What keeps pulling them in is the great
retail mix, with the top brands fighting
for space to do business with some of
the country’s most loyal shoppers.
We keep intu Lakeside at the top of its
game – great quality design, attention
to detail and a constant eye on where we
can improve the customer’s experience
means a relentless roll-call of new
projects that bring in more retailers,
customers and rental income. We created
the Boardwalk in 2007 to allow lakeside
eating, which opened fully let. Recently
we enhanced it by creating a year-round
external dining environment. In 2014 we
redeveloped the food court to create a
dynamic dining experience that appealed
to aspirational brands and customers.
Our most recent completed project
is the hotel which opened in 2017.
Sited overlooking the lake, the
Thurrock Lakeside Travelodge is one
of the best performing hotels in
the Travelodge portfolio.
Our £72 million leisure extension, now
on site, will make intu Lakeside one of
the biggest leisure attractions in the
southeast, with the first Nickelodeon
theme park in a shopping centre in the
UK and a host of other leisure names
including Hollywood Bowl, Flip Out
trampolining, Puttshack minigolf and
leading food brands already signed up.
We expect the 175,000 sq ft extension
to open fully let in spring 2019.
Our 100 per cent ownership means we
have lots of options to continue to drive
value to the southeast’s pre-eminent
retail and leisure destination. We
already have planning permission for
400,000 sq ft of retail space and are
looking at developing our leisure offer
further to attract the younger
demographic that is moving into the
Thames Gateway area – Europe’s largest
regeneration project which will bring
many more jobs and homes to the area
over the next few years. Zipwires
and hot air balloons are in the planning
stages. Up, up and away intu Lakeside!
intu Lakeside highlights
Annual sales
£568m
Total sq ft of retail, leisure
and catering space
1.4m
Annual footfall
20m
Economic contribution
£379m
The intu difference
intu Lakeside
27
Building on
our success
intu Lakeside never stands still.
Like all our flagship destinations,
we find many new ways to refresh
and reinvigorate customers’
shopping experience
1990: opening of first out-of-town
shopping centre in the southeast
Mid-90s: intu Lakeside fully
reaches its extensive catchment
and becomes an iconic destination
2007: development of Boardwalk
opens up the lake to diners
2014: new food court creates
aspirational new dining experience
2017: Travelodge hotel opens
on the shore of the lake
But we are not finished there…
As the importance of leisure to our customers
grows we are bringing lots of top new attractions
2019: the new leisure
extension heralds the
arrival of the
Nickelodeon theme
park, Puttshack minigolf,
Flip Out trampolining
and great restaurants
Blue sky thinking: new
leisure ideas will keep future
generations enthralled
A 21st-century tenant mix
The evolving tenant mix at intu Lakeside tells the
story of the changing face of shopping centres.
Over the last five years we have seen a 10 per cent
increase in the number of leisure and catering outlets
as a proportion of stores, as we meet customers’
growing expectations for experiences. We can see
the benefits of satisfying this demand through
increase in dwell times by eight per cent (and we
know that the longer customers stay the more they
spend). The space devoted to leisure and catering will
double when the leisure extension opens in 2019.
GoInStore goes live
GoInStore, one of our intu Accelerate start-ups,
predicts live video is going to be the next big
thing in omnichannel retail. We offered them
intu Lakeside’s charming and knowledgeable
personal stylist Carlene Noel to create content for a
pilot series of real-time videos that would showcase
the centre’s retailers and attract customers via our
Shop Insider channel. Over five days she worked with
many of our stores at intu Lakeside such as Toni &
Guy, Debenhams and MAC, to introduce customers
to new ranges and brands. The results were
impressive – 30 per cent of viewers started shopping
through our website, 12.5 per cent booked a stylist
and the average viewing time was nearly six times
the usual dwell on our site. “Live video proved to be
a great way to enhance the shopping experience,”
says Carlene.
28
intu properties plc Annual report 2017
Making
merry
We are putting our stamp on intu Merry Hill
– creating a thriving shopping and leisure
destination and working with local people
to put the centre at the heart of the
local community
We have owned our newest flagship
destination, intu Merry Hill, for just
three years. In that time we have
refreshed the mall, attracted new brands,
enabled £15 million of retailer investment
and upgraded Next to the 75,000 sq ft
site recently vacated by Sainsbury’s.
Over the next few years we are going
to spend £100 million enhancing the
shopping centre’s leisure and retail mix.
This investment will contribute even
more to the £369 million gross value
we currently add to the local community,
through employment, business
rates, capital investment and
charitable donations.
As a business we believe in doing what we
can to improve local social issues, and we
prioritise good community engagement
because it benefits local people, staff and
ultimately is good for our shopping centre
by bringing in new customers. Over the
last year we have:
— employed a community manager
to strengthen local relationships
— launched the Re-Beat Campaign to
raise over £8,500 to place 10 accessible
defibrillators in Dudley and train over
1,000 people within the community in
their use
— taken part in intu’s national campaign
to make our centres autism-friendly
and provided assisted shopping guides
— worked with local charity the Beacon
Centre to train over 60 intu staff in
blind awareness and offered assisted
shopping sessions to make intu Merry
Hill accessible to more people
— helped local young people develop the
skills they need to find work, run a Jobs
Fair with Dudley South MP Mike Wood,
taken part in Retail Matters Week
and supported Young Enterprise
— raised £8,000 through all our
Christmas activity for local cancer
charity, the White House, and
volunteered 60 hours of staff time
— employed local charity, Go Green,
to sort cans collected through the
Every Can Counts recycling campaign
The intu difference
At the heart of communities
29
intu Merry Hill highlights
18m
annual footfall
£484m
annual turnover
33%
rise in zone A rents
since 2014
8,248
local people employed
£105k
community
contributions
1,987
donated hours
£22m
business rates paid by
intu and our tenants
£369m
value to local economy
One Planet Living
Last year we created the Green Lab to incubate
and roll out sustainable initiatives across the
business. We have worked with Bioregional to
explore ways of applying their One Planet Living
framework within the redevelopment of intu
Broadmarsh. These include introducing nature
into the design, offering healthy food and
sustainable travel options during construction
and redesigning unused external space
to increase the health
and wellbeing potential
at the development.
The intu Merry Hill Green Gym® is the fifth in the
portfolio but the first to be sited on intu land,
on the UNESCO-endorsed Saltwells nature reserve.
It aims to encourage people to improve both their
health and the environment, and has attracted
70 volunteers since it began in 2016.
70volunteers
Welcoming the community
in Spain
Our Spanish centres each have a
permanent space dedicated solely
for the use of local charities, the ‘Espacio
Solidario’. In 2017 our Spanish centres
collaborated with 52 charitable projects
covering everything from environmental
issues to cancer information. The Caritas
charity used the Puerto Venecia space
over the year to collect clothes for
recycling, collecting 40 tonnes of
clothes and raising €77,466.
The total value of our charitable support
in Spain, from all sources, came to
€310,000 for the year.
30
intu properties plc Annual report 2017
Our business model
Our business model is focused on creating shopping centres that are loved
by customers and where retailers flourish. This builds a long-term business
that delivers value for our shareholders and stakeholders
Our assets and resources
We have unique assets and resources that
provide the foundations for our business
What we do
We apply the intu difference – our specialist
knowledge, expertise and market insight – to
create the most popular shopping centres by:
Our centres
National presence with high
quality retail and leisure
destinations visited by half the
UK’s population each year
See top properties on page 4
Our employees
Professional, empowered
and motivated teams that
are specialists in their fields
See our people on page 54
Our brand
Respected shopping centre
brand focused on enriching
the customer experience
both in centre and online
See the intu difference
on page 15
Our relationships
Enduring, creative and
collaborative relationships
with retailers, customers,
employees, partners
and communities
See relationships on page 32
Our financial strength
Robust capital structure provides capacity to deliver
our objectives from a range of funding sources
See financial review on page 48
making customers smile
Our insight and management of centres
attract customers more often, for longer
and from further away by offering the right
mix of retail, leisure and catering alongside
our distinctive brand proposition
helping retailers flourish
Our high-footfall locations, flexibility and
strong brand give retailers the confidence that
they will trade successfully with intu, which
drives rental income and capital growth
See helping retailers flourish on page 22
The value we add
We deliver sustainable value for our shareholders and stakeholders
Our shareholders
Strong stable income and capital growth
Our customers
Compelling experiences
Our communities
Significant economic contribution
5.2%
total financial return
70
p
average net promoter score
g
£4.6bn
g
gross value added
Our retailers
Environments that help retailers flourish
Our people
Professional and empowered
Our environment
Operational and environmental efficiency
+2.9%
outperformance of national
footfall benchmark
14/14
all intu centres awarded Investors in People
gold standard
58%
reduction in carbon intensity since 2010
Our business model
31
S
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How our strategy helps
us create value
From 2015 to 2017,
we focused on these
strategic objectives
to create a competitive
advantage and deliver
long-term value
1
Optimising
asset
performance
4
Seizing the
growth
opportunity
in Spain
Our
customers
2
Delivering UK
developments
3
Making
the brand
count
For more details on how
we achieved this in 2017 see the
strategy overview on page 34.
For details of our 2018
strategy see page 10
Underpinned by our culture
Behaving responsibly
p
See more on corporate responsibility on page 57
p g
p
y
d
Being a good employer
B i
p p
See more on our people on page 54
p g
l
l
Li i
Living our values
See more on our culture on page 54
p g
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intu properties plc Annual report 2017
Relationships
People are what make us tick. Our relationships and reputation with our stakeholders
are important to the overall sustainable success of our business
We maintain close relationships with
our stakeholders, checking in with them
regularly to find out what we are doing
well, what we can do better, and where
their needs have changed. Every two
years our materiality process takes a
formal sounding of the issues around our
business that are most relevant to them.
In 2017 we introduced a reputation
management framework into the
business to enable us to measure how
we are perceived by our stakeholders
robustly and to ensure that our strategy
reflects their needs and perceptions.
We have a large number of stakeholders
but we initially focused on five primary
groups: customers, tenants, employees,
local and national government and
investors. Working with Reputation
Institute we identified areas of most
concern or interest to each of these five
groups and then used existing data sets
to see how intu was perceived.
Combined with the 2017 RepTrak UK
survey this resulted in a reputation score
across a number of core competencies.
We also benchmarked ourselves against
not only our property peers but also
relevant leisure and retail brands in the
FTSE 100 and 250.
introducing a net promoter score system
similar to Tell intu, to measure key points
along the relationship chain with tenants,
such as leases or shopfitting.
Working with our stakeholders
Customers
Our customers are at the heart of
everything we do, so we listen to them
carefully to keep our centres continually
evolving and meeting their requirements.
Our net promoter score, which we assess
from Tell intu and is consistently high at
70, shows where we are succeeding and
where we could make improvements.
This year we continued our research
into the customer journey which aims
to enhance customer experience in our
centres. Our brand tracker measures
awareness, advocacy and consideration
of our brand by customers – spontaneous
awareness was 26 per cent at the end
of 2017. We heard from 20,000 shoppers
through our Tell intu customer feedback
programme and our Shopper View
research panel of 2,000 customers
participated in 22 projects.
Retailers
Good relationships with our retailers are
essential to understanding their retail
requirements and helping them flourish.
As a result of this initial work, in 2018
we are undertaking bespoke qualitative
research with our tenants and will be
We build our relationships through open
communication across the business. As
well as day-to-day contact we hold
regular client reviews with customer
relationship managers.
We attend a wide range of industry
conferences and we host regular
Merchants Association meetings with
tenants during the year to discuss local
plans and issues.
Investors
We deliver long-term value to our
investors through strong, stable income
streams and capital appreciation. This
ensures we have the ability to move the
business forward. Understanding the
requirements and concerns of both
existing and potential investors is key.
This year we conducted 390 meetings
with investment institutions, including
away days to see our centres in action in
the UK and Spain. We hosted regular
investor visits to our centres to show
how we are meeting our objectives and
attended investor conferences in the UK
and internationally. We took analysts and
investors to Madrid Xanadú, to show
them the quality of our Spanish portfolio
and to reveal our latest plans for
intu Costa del Sol.
We also engaged in environmental, social
and governance indices which show high
performance year-on-year.
Relationships
33
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Suppliers
We rely on our suppliers to help our
business run smoothly, from day-to-day
operations through to the construction
of major developments. We have open,
transparent and long-term relationships
with suppliers to ensure they maintain the
same high standards we set ourselves.
For example, our relationship with Trinity
Fire & Security goes back five years. Not
only does it give us peace of mind that
our crucial fire alarm systems function
correctly, but knowing our centres so well
enables them to proactively initiate ideas
that keep us innovative.
Local and national government
Enduring relationships with local
authorities, town centre management
and MPs is vital to our sustainability as a
long-term business. Our centres are at the
heart of many of the towns and cities in
which we operate and where we play a
vital community role. In some the local
authority is our investment partner.
Each year we host an annual
parliamentary dinner for MPs in whose
constituencies our centres lie, to discuss
issues of local importance.
We are working closely with the Minister
of State for Disabled People, Health and
Work to champion accessibility in retail
and our CR Manager is co-chairing a retail
accessibility forum with the Minister.
Centre managers are empowered
to engage with their local MPs and
councillors and to actively participate in
local Business Improvement Districts and
town centre partnerships. For example,
intu Chapelfield’s general manager is
the vice-president of the Chamber of
Commerce, putting us at the heart of
local business and community activity.
We also work with local authorities to
progress our development pipeline.
Our people
Our employees are the experts behind
the success of the business. In centres,
they are the face of intu and delivering
our brand promise is central to making
both customers and retailers happy.
Our commitment to employee
engagement is the key to our motivated
workforce and was central to achieving
Investors in People gold award for all 14
of our centres.
This year we engaged with our employees
using many channels such as our intranet,
staff presentations, briefings and
employee consultation forums. Our Win
Your Dream reward and recognition
programme entered its third year.
Local communities
intu centres are at the heart of the
communities where they are located.
Good community engagement benefits
our customers and local people, and
ultimately is good for our business.
This year intu staff volunteered 28,000
hours to help local community groups.
We held over 1,300 community activities
in our centres. We engaged with nearly
900 charities and reached over 3,600
people through our various community
employment and other schemes. In total,
we donated £1.9 million in community
support through time, space and money.
The value of long-term relationships
Good long-term relationships are essential
to our development programme, ensuring
projects run smoothly with planners,
suppliers and residents. Over the last
10 years we have worked closely with
Watford Borough Council to bring the
intu Watford extension to fruition and
create a scheme that enhances Watford
town centre and will benefit residents for
years to come. We have worked with our
construction partner Laing O’Rourke
previously, and they are well-versed in
what we expect of them in their role as
an intu supplier.
34
intu properties plc Annual report 2017
Strategy overview
Our four strategic objectives were the means by which we
put our business model into action effectively in 2017
1 Optimising asset performance
2 Delivering UK developments
We achieved this by
— making our locations the most desirable for shopping and socialising
— astutely managing the assets to take advantage of new trends
We achieved this by
— delivering the required planning approvals
— generating the level of demand to commence a project that
and occupiers
delivers our required returns
— building long-term partnerships with local authorities
— having the funding to progress the pipeline
and communities
Progress in 2017
— delivered growth in like-for-like net rental income
— improved rental levels on new leases and rent reviews
— upsized key retailers such as Next, Primark and River Island as well as
introducing exciting new names to our centres, including Paul Smith
and Inglot
Progress in 2017
— on target and on budget with the major extension at intu Watford
— commenced the Nickelodeon-anchored leisure extension at
intu Lakeside
— signed Primark to anchor the transformational redevelopment
of Barton Square at intu Trafford Centre
— achieved planning approval for the retail and leisure extension
at intu Milton Keynes
Managing risk
— property market
— operations
— brand
KPIs we use to measure
our success
— optimising asset performance
encompasses our whole
business and as such is
measured by all KPIs
Key stakeholders we engage
Customers, retailers, suppliers
KPIs we use to measure
our success
— shareholder return
— total financial return
— prime property assets
— GVA
Managing risk
— property market
— financing
— developments and acquisitions
— brand
Key stakeholders we engage
Customers, investors, suppliers, local and national government
Link to our 2018 objectives
— growing like-for-like net rental income
— delivering operational excellence
— optimising our flagship destinations
Link to our 2018 objectives
— optimising our flagship destinations
— making smart use of capital
For more information on:
our 2018 priorities, see pages 10 and 11
KPIs, see pages 36 and 37
risk, see pages 38 to 39
Strategy overview
35
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3 Making the brand count
4 Seizing the growth opportunity in Spain
We achieved this by
— offering a distinctive customer signature experience in all our centres
— having a multichannel offering for retailers and customers
— delivering continued world class service to retailers and shoppers
— ensuring we are a good corporate citizen
We achieved this by
— building a platform of the best centres in Spain through acquisition
and development
— delivering the same brand experiences in Spain as in the UK
— moving the development options forward to a point where we
can consider exercising them and commencing development
Progress in 2017
— increased sales generated through the website to £9 million
— achieved our 2020 target of a 50 per cent intensity reduction
Progress in 2017
— acquired Madrid Xanadú, a top-10 shopping centre in Spain
— achieved key planning approval at intu Costa del Sol and advanced
in carbon emissions three years early
remaining consents
— ensured high levels of customer service, with consistently
— improved tenant mix, at increased rental levels, at all centres
strong net promoter scores
Managing risk
— property market
— operations
— brand
KPIs we use to measure
our success
— footfall
— like-for-like net rental income
— shareholder return
— income performance
— GVA
Key stakeholders we engage
Customers, retailers, suppliers
KPIs we use to measure
our success
— footfall
— like-for-like net rental income
— shareholder return
— total financial return
— income performance
— prime property assets
Managing risk
— property market
— financing
— developments and acquisitions
— brand
Key stakeholders we engage
Customers, retailers, our people, local and national government
Link to our 2018 objectives
— delivering operational excellence
Link to our 2018 objectives
— growing like-for-like net rental income
— delivering operational excellence
— optimising our flagship destinations
36
intu properties plc Annual report 2017
Key performance indicators
We measure progress against strategic objectives using the
following financial and non-financial performance measures
Key to strategic objectives
1 Optimising asset performance
2 Delivering UK developments
3 Making the brand count
4 Seizing the growth opportunity in Spain
Footfall (%)
2
1
0
-1
-2
-3
-4
-5
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 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 increased in the
year, driven by our retail,
catering and leisure
offerings, together with our
customer-focused events,
and outperformed the
ShopperTrak measure of
UK national retail footfall.
Strategic
objective
1
3
4
+0.1%
-2.8%
2013
2014
2015
2016
2017
intu
ShopperTrak
Occupancy (%)
100
98
96
94
92
90
Why is this important?
Attracting and retaining
the right mix of retail,
catering and leisure
operators will enhance
our centres’ appeal and
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 unlet units.
How have we performed?
Occupancy remained
stable during the year at
96 per cent and remains
above the IPD (retail)
monthly index
benchmark figure.
Strategic
objective
1
96%
95%
2013
2014
2015
2016
2017
intu
IPD (retail)
Like-for-like net rental income (%)
-1.9%
-3.2%
+1.8%
+3.6%
+0.5%
4
2
0
-2
-4
Why is this important?
Measures the organic
growth in income
generated from our
centres in the year.
How is this measured?
Year-on-year movement
in net rental income with
the impact of acquisitions,
developments and
disposals removed.
How have we performed?
Like-for-like net rental
income grew in 2017,
reflecting better rental
values from strong
retailer demand and rent
reviews. The growth
includes the negative
impact of 1.4 per cent
from the former BHS
stores which are now
substantially relet.
2013
2014
2015
2016
2017
Shareholder return (%)
30
20
10
0
-10
-20
-30
Why is this important?
Combines share price
movement and dividends
to produce a direct
measure of the change
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 showed a
negative shareholder
return in 2017 compared
to an overall rise in the
REIT sector mainly driven
by negative sentiment to
retail in the year.
12%
-5%
2013
2014
2015
2016
2017
intu
FTSE REIT index
Strategic
objective
1
3
4
Strategic
objective
1
2
3
4
Key performance indicators
37
Total financial return (%)
+0.8%
+13.5%
+10.2%
+3.4%
+5.2%
15
10
5
0
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?
The movement in adjusted
net asset value per share
plus dividends paid in the
year as a percentage of
the opening adjusted net
asset value per share.
How have we performed?
Total financial return
improved in the year,
primarily driven by a
revaluation surplus,
against a deficit in 2016.
Dividends remained
unchanged.
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
Strategic
objective
1
2
4
2013
2014
2015
2016
2017
Underlying earnings per share (pence)
13.7p
13.3p
14.2p
15.0p
15.0p
15
10
5
0
How is this measured?
Underlying earnings
exclude property and
derivative valuation
movements, exceptional
items and related tax.
Why is this important?
Underlying earnings per
share is based on the
underlying income
generated in the year
which gives an indication
of the extent to which
dividend payments
are supported by
underlying operations.
How have we performed?
Underlying earnings per
share remained stable,
reflecting the like-for-like
net rental income
movement, together with
the positive impact of the
acquisition of Madrid
Xanadú, offset by higher
finance costs and
administrative expenses.
2013
2014
2015
2016
2017
Prime property assets (%)
9
6
3
0
-3
-6
-9
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.
+1.5%
-0.4%
How is this measured?
The valuation gain or loss
in the year expressed
as a percentage of the
book value pre-valuation
assessed on a like-for-like
basis for the Group’s
investment property.
How have we performed?
Following seven years of
outperforming the IPD
benchmark, this year
reflected the correction of
the overly severe reduction
in the IPD benchmark in
2016 following the EU
referendum vote.
2013
2014
2015
2016
2017
intu
IPD monthly index (retail)
GVA of community investment (£bn)
3.1
3.5
4.2
4.9
4.6
5
4
3
2
1
0
2013
2014
2015
2016
2017
Greenhouse gas emissions intensity
(CO2e kg/m2)
120
85
84
73
56
48
90
60
30
0
2013
2014
2015
2016
2017
Why is this important?
Shopping centres
create wealth and
employment for their
local communities.
Gross value added (GVA)
measures the economic
contribution of intu
to local communities
in the UK.
How is this measured?
GVA is calculated on
a range of different
activities and types of
economic output of our
UK assets, including:
investment expenditure,
intu operational jobs,
tenant jobs and tax
contributions. This data
is independently assured.
How have we performed?
GVA has decreased by
£0.3 billion predominantly
as a result of the disposal
of intu Bromley. On a
like-for-like centre
basis, GVA remained
broadly stable.
Why is this important?
Measures our
operational efficiency
and performance of our
existing assets. It also
measures performance
against our carbon
intensity reduction target
of 50 per cent by 2020
against the 2010 baseline.
How is this measured?
Greenhouse gas
equivalents are
calculated to work
out the greenhouse gas
intensity of the energy we
use. These include the
direct and indirect
emissions of our directly
managed UK centres.
How have we performed?
Since 2010 we have
reduced emissions by
58 per cent, meeting our
target of a 50 per cent
reduction by 2020,
three years early.
Strategic
objective
1
3
4
Strategic
objective
1
2
4
Strategic
objective
1
2
3
Strategic
objective
1
38
intu properties plc Annual report 2017
Focus on risk
The effective assessment and management of risk
is key to the delivery of the Group’s strategy
intu’s Board has responsibility for
establishing the Group’s appetite for risk
based on the balance of potential risks
and returns in achieving its strategic
objectives, and has overall responsibility
for identifying and managing risk. Risk
management is embedded in our
culture, with all employees aware of
the role they play.
Risk appetite
An assessment of the Group’s risk
appetite in 2017 showed that this
remained broadly unchanged and is set in
the context of our focus on one sector –
quality shopping centres. As experts in
this sector we are able to mitigate the
risk involved in growing the business by
acquisition, development, our active asset
management strategy and brand focus.
This focus on our core strengths is
balanced by a more cautious approach
to risk in other areas.
In financing we set a target Group debt to
assets ratio of 40-50 per cent and require
interest cover of more than 160 per cent,
giving us significant headroom against
our loan covenants to ensure that we
are in a strong position in the event of any
substantial falls in property values. We
continue to look to minimise interest
rate risk with a policy of hedging at least
75 per cent of the exposure and seek to
refinance debt early to reduce risk. This
does not, however, prevent us looking at
innovative debt structures that provide
the Group with diverse funding options.
The Group also relies on insurances to
mitigate against other financial risks.
Risk management process
intu’s Board has overall responsibility
for risk management. The effectiveness
of the risk management system is
monitored and reviewed by the Audit
Committee and through periodic external
review. All recommendations made within
the 2015 external review have been
implemented. Our ongoing assessment
of risk is underpinned by a formal risk
review process conducted for each area
and every level of the business including
each centre, each department, internal
committee and the executive team.
These reviews provide an opportunity to
identify risks and assess them for impact
and likelihood. The assessment also
includes how quickly the risks would
impact our business and for how long.
The risk registers created through this
process are subject to at least an annual
review, facilitated by the risk and assurance
department. Operational management is
responsible for managing the risks and for
updating the risk registers.
The Audit Committee oversees the risk
management process, with the Director
k
Risk management framework
Ri k
t f
Board
— ensure that risk is managed across the business
— define the Group’s appetite for risk
— with the Executive Committee, assess the Group’s principal risks
— establish ‘tone at the top’ to drive risk culture across the business
y
t
i
l
i
b
i
s
n
o
p
s
e
r
g
n
i
t
r
o
p
e
r
d
n
a
g
n
i
r
o
t
i
n
o
M
Audit Committee
— monitor and review the effectiveness of the Group’s risk management system
and risk culture
— oversee and challenge the Group’s overall approach to monitoring areas of risk
Risk and assurance
department
Executive Committee
— lead the development of risk management for intu
— collate outputs of risk management exercises including risk registers for presentation
to Audit Committee, Executive Committee and Board
— identify and communicate emerging risks for the business
— input into Board’s process for setting risk appetite
— with the Board, assess the Group’s principal risks
— endorse ‘tone at the top’ set by the Board
— implement strategy in line with the Group’s risk appetite
— lead operational management’s approach to risk
Operational management
— create an environment where risk management is embraced
— communicate the responsibility of risk management to all employees
— implement and maintain risk management processes
— produce and maintain risk registers including identification of risks, mitigating controls
and actions required
Employees
— active in the day-to-day management of risk
— give feedback to operational management on day-to-day risk management
I
m
p
l
e
m
e
n
t
a
t
i
o
n
a
n
d
c
o
m
p
l
i
a
n
c
e
r
e
s
p
o
n
s
i
b
i
l
i
t
y
Focus on risk
39
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
of Risk and Assurance reporting directly
to the Audit Committee Chairman,
ensuring independence and objectivity.
There are four risk updates per year.
Principal risks and uncertainties
Fully integrated and thorough risk analysis
underpins the ability to achieve our
strategic objectives. The Board and
Executive Committee have undertaken a
robust assessment of the principal risks
we face, including those that would impact
the business model, future performance,
solvency and liquidity. This assessment is
not limited to purely financial metrics but
spans the whole business model, including
environmental, social and employee
matters, respect for human rights and
anti-corruption and anti-bribery matters.
We have identified principal risks and
uncertainties under five key headings:
property market; operations; financing;
developments and acquisitions; and brand.
These are discussed in detail on the
following pages. A principal risk is one
which has the potential to significantly
affect our strategic objectives, financial
position or future performance and
includes both internal and external factors.
We monitor movements in likelihood
and severity such that the risks are
appropriately managed in line with the
Group’s risk appetite.
The risk profile for 2017 has remained
broadly in line with 2016 with no significant
new principal risks identified nor substantial
changes in existing principal risks. Where
the likelihood for certain risks has
increased additional risk mitigation
strategies have been put in place. We
have also assessed the impact of the
proposed transaction with Hammerson
on our principal risks.
The main impact from the UK’s decision
to exit the EU on the risks that the Group
faces is the potential negative impact on
the macro-economic environment as a
result of the continuing uncertainty around
transitional and post-Brexit arrangements.
Specifically, the risks we face are affected
by any changes in sentiment in the
investment and occupier markets in
which we operate, in our ability to execute
our recycling and investment plans
and in broader consumer confidence
and expenditure.
Risk profile
Risk profile
Change in level of risk
Increased
Remained the same
t
c
a
p
m
I
8
3
1
5
2
6
7
9
4
Likelihood
1 Property market – macro-economic
2 Property market – retail environment
3 Operations – health and safety
4 Operations – cybersecurity
5 Operations – terrorism
6
7
8
9
Financing – availability of funds
Developments and
acquisitions – developments
Developments and
acquisitions – acquisitions
Brand – integrity of the brand
Active insurance management
We have been using the brand to improve
our Group-wide purchasing of insurance,
bringing together external insurance
partners (brokers, insurers, solicitors and
loss adjusters) each year to present a
business update and show how we manage
new risks and reduce the overall risk profile.
This gives our insurance family a greater
insight into our processes, behaviour and
culture. They are able to identify the scope
of cover that intu actually requires, and the
risk that intu are able to transfer.
The benefits go beyond financial savings to
improved coverage terms and funding to
allow intu to trial risk reduction initiatives
and roll out new programmes. Recent
funded trials include a virtual assistant to
provide safety messaging to customers;
more security cameras and yellow comb
plates for escalators to improve safety. By
implementing risk-reducing controls, we
show that a safe and secure environment
can lead to lower claims, reduce premium
rates and provide increased risk
management funding.
40
intu properties plc Annual report 2017
Principal risks and uncertainties
Risk and impact
Mitigation
Change 2017 commentary
Strategic objectives affected
Property market
1 Macro-economic
Weakness in the macro-
economic environment
could undermine rental
income levels and property
values, reducing return
on investment and
covenant headroom
— focus on high-quality shopping centres together with
their upgrading
— covenant headroom monitored and stress-tested
— make representation on key policies, for example
business rates
— company-wide marketing events across centres
to attract footfall
— use our respected brand to attract and retain
aspirational retailers
— continued geographic diversification by increasing
Spanish presence
2 Retail environment
Failure to react to changes
in the retail environment
could undermine intu’s
ability to attract customers
and tenants
— active management of tenant mix including letting of former
BHS units
— regular monitoring of tenant strength and diversity
— upgrading assets to meet market demand
— Tell intu customer feedback programme helps identify
changes in customer preferences
— work closely with retailers
— digital strategy that embraces technology and digital
customer engagement. This enables intu to engage in and
support multichannel retailing, and to take the opportunities
offered by ecommerce
Operations
3 Health and safety
Accidents or system failure
leading to financial and/or
reputational loss
— strong business process and procedures, including
compliance with OHSAS 18001, supported by regular
training and exercises
— annual audits of operational standards carried out internally
and by external consultants
— culture of visitor, staff and contractor safety
— crisis management and business continuity plans in place
and tested
— retailer liaison and briefings
— appropriate levels of insurance
— staff succession planning and development in place to ensure
continued delivery of world class service
— health and safety managers or coordinators in all centres
4 Cybersecurity
Loss of data and information
or failure of key systems
resulting in financial and/
or reputational loss
— data and cybersecurity strategies
— regular testing programme and cyber scenario exercise
and benchmarking
— appropriate levels of insurance
— crisis management and business continuity plans in place
5 Terrorism
Terrorist incident at an intu
centre or another major
shopping centre resulting in
loss of consumer confidence
with consequent impact on
lettings and rental growth
and tested
— Data Committee and Data Protection Officer in place
— monitoring of regulatory environment and best practice
— cybersecurity assessment performed by external consultancy
and full action plan in place (programme of works)
— managing of supply chain and service providers who
hold intu data
— strong business processes and procedures, supported by
regular training and exercises, designed to adapt and
respond to changes in risk levels
— extraordinary pre-planned operational responses to changes
in national threat level
— annual audits of operational standards carried out internally
and by external agencies
— culture of visitor, staff and contractor safety
— crisis management and business continuity plans in place
and tested with involvement of multiple external agencies
— retailer liaison and briefings
— appropriate levels of insurance
— strong relationships and frequent liaison with police,
NaCTSO and other agencies
— NaCTSO approved to train staff in counter-terrorism
awareness programme
— internal head of security appointed
1
2
3
4
Likelihood of macro-economic weakness continues to
be a risk with political uncertainty in the UK and Brexit
arrangements not yet detailed, which has increased
investor caution with lower transaction volumes in the year
— like-for-like property values broadly holding up, but
under pressure at the lower end of the market
— substantial covenant headroom
— no significant near-term debt maturities and average
unexpired term of 6.6 years
— long-term lease structures with average unexpired
term of 7.5 years
— €517m acquisition of Madrid Xanadú and subsequent 50
per cent sale to joint venture partner at the same price
— sale of 50 per cent interest in intu Chapelfield at
£148m, ahead of the December 2016 valuation
Likelihood and severity of potential impact was monitored
closely in 2017 with intu’s strategy continuing to deliver
solid footfall numbers and occupancy
— significant progress on planning and pre-letting of
near-term pipeline with a focus on leisure
— continuing digital investment to improve relevance
as shopping habits change
— occupancy remains strong at 96 per cent
— footfall growth continues to beat the benchmark
— on site with the £72m intu Lakeside leisure extension
1
3
Likelihood of potential impact has not changed
significantly during 2017, however severity impacted
by new enforcement structure
— retained OHSAS 18001, demonstrating consistent
health and safety management process and procedures
across the portfolio
— work continuing towards achieving additional
accreditations with focus on ISO 14001
— gold award from RoSPA
— full review undertaken of each centre’s fire strategy
and building specifications post-Grenfell has provided
appropriate assurance across the portfolio
Likelihood has increased with greater reliance on
operational and third party systems and data, and with the
number of recent high-profile hacks. Severity of potential
impact has reduced by significant development of tools
and controls. Hacking attempts have not resulted in data
loss or major operational impacts
— ongoing Group-wide cybersecurity project with
investment in tools, consultancy and staff to
mitigate impact of threats from evolving
cybersecurity landscape
— implementing updated GDPR policies and procedures
Overall likelihood and severity of potential impact
unchanged. In May 2017 we enacted our operational plan
for the period of increased threat level. The threat level
was subsequently reduced to the prior threat level
— there have been five terrorist-related incidents in the
UK in 2017
— national threat level remains at Severe
— major multi-agency security exercises held at all five
super-regional intu shopping centres
— operating procedures in place for the introduction
of further security measures if required
Principal risks and uncertainties
41
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
Risk and impact
Mitigation
Change 2017 commentary
Strategic objectives affected
Financing
6 Availability of funds
Reduced availability of funds could
limit liquidity, leading to restriction
of investing and operating activities
and/or increase in funding cost
— funding strategy regularly reported to the Board
with current and projected funding position
— effective treasury management aimed at balancing
the length of the 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
and partners
— focus on high-quality shopping centres
2
4
Macro-economic events during 2017, and the
uncertainty caused by them, mean the increased risk
of reduced availability remains. However, severity
of potential impact unchanged from 2016. Regular
refinancing activity continuing to evidence the
availability of funding
— new €263m loan to finance acquisition of
Madrid Xanadú
— introduction of joint venture partner into
Madrid Xanadú
— £140m refinancing of intu Milton Keynes
— £488m refinancing of intu Merry Hill
— £250m additional financing on intu Trafford Centre
Developments and acquisitions
2
4
7 Developments
Developments fail to
create shareholder value
— Capital Projects Committee reviews detailed appraisals
before and monitors progress during significant projects
— fixed price construction contracts for developments
Likelihood and severity of potential impact have
remained unchanged in 2017 as the Group has
progressed work on its development pipeline
agreed with clear apportionment of risk
— significant levels of pre-lets exchanged prior
to scheme development
8 Acquisitions
Acquisitions fail to create
shareholder value
— research and third party due diligence undertaken
for transactions
— local partner, advisors and experienced staff in Spain
with specialist market knowledge
— where appropriate, investment risk reduced through
financing and joint venture investments
Brand
9 Integrity of the brand
The integrity of the brand is
damaged leading to financial
and/or reputational loss
— intellectual property protection
— strong guidelines for use of brand
— strong underlying operational controls and crisis
management procedures
— ongoing training programme and reward and
recognition schemes designed to embed brand
values and culture throughout the organisation
— traditional and digital media monitoring and analysis
— Tell intu and Shopper View customer
feedback programmes
— at intu Watford works are on schedule to hit all
key milestones
— onsite with intu Lakeside leisure development
— detailed appraisal work and significant pre-lets ahead
of starting major development projects
— key anchor letting to Primark secured prior to
proposed start on site in 2018 at Barton Square
for intu Trafford Centre transformation
Likelihood and severity of potential impact have
remained unchanged in 2017
— substantial due diligence process undertaken before
acquisition of Madrid Xanadú
1
2
3
4
Likelihood and severity of potential impact unchanged
in 2017
— continuing media interest in intu and our commentary
and opinions on the business and wider landscape
— ongoing development of brand in Spain
— net promoter score consistently high at around
70 in 2017
Key to strategic objectives
Change in level of risk
1 Optimising asset performance
Increased
2 Delivering UK developments
Remained the same
3 Making the brand count
4 Seizing the growth opportunity in Spain
42
intu properties plc Annual report 2017
Operating review
Our operating review analyses how we have
performed in the year against our strategy
UK investment market
Prime shopping centres continue to
attract interest from both international
and domestic investors. While activity
was limited in 2017, good levels of demand
remain for quality assets in the UK’s
liquid and transparent market for large
shopping centres.
A flight to quality has ensured prime yields
on assets with simple ownership
structures remain stable as investors look
at the quality and longevity of income
streams coupled with rental growth
potential in a market where new supply,
by way of development, remains low.
Against this, the depth of investor demand
for secondary assets has diminished.
Optimising asset
performance
We focus on creating vibrant
environments where customers and
retailers want to be. This increases the
value of our centres and provides strong,
stable income streams and positive
operating metrics. These elements
ensure we deliver attractive long-term
total property returns.
The table below shows the main
components of the £47.3 million
revaluation surplus:
— UK super-regional centres and major
city centres: stable values recognising
the continuing attraction of this asset
class which remains key to retailers’
requirements. The small overall
deficits relate to investment on the
existing intu Watford centre and
tenant repositioning at intu Merry Hill
not yet reflected in rental values
Valuation
Market value
Like-for-like
31 December
2017
£m
31 December
2016
£m
Surplus/
(deficit)
£m
Surplus/
(deficit)
%
UK super-regional centres
UK major city centres
Spanish centres
Acquisition: Madrid Xanadú
Spanish developments
Other
6,373.7
2,559.3
371.6
9,304.6
235.2
212.8
470.1
intu Chapelfield (asset held for sale
at 31 December 2017)
Total
10,222.7
306.5
10,529.2
6,315.8
2,544.3
331.0
9,191.1
–
76.7
419.2
9,687.0
297.7
9,984.7
(17.7)
(15.0)
22.4
(10.3)
1.7
74.5
(28.2)
37.7
9.6
47.3
(0.3)
(0.6)
6.4
(0.1)
0.7
53.8
(5.1)
0.4
3.3
0.5
— Spanish centres: strong rental growth
and continued strong demand for
top-quality Spanish centres has driven
valuations up at both intu Asturias and
Puerto Venecia
— Spanish developments: with most
of the planning requirements in
place at intu Costa del Sol, the first
independent valuation of the site,
which was previously carried at
cost, delivered a £74 million surplus
over cost
— other: represents valuation
movements on assets valued below
£200 million each
The weighted average nominal equivalent
yield at 31 December 2017 remained
stable at 5.03 per cent, an increase of
one basis point in the year.
On a like-for-like basis, ERV increased by
1.0 per cent in the year, compared with
the IPD index which indicated a
0.4 per cent increase.
The overall quality of our portfolio
is illustrated by our long-term
outperformance of the IPD capital
growth monthly retail index, as shown
in the chart below.
Total Property Return
130
125
120
115
110
105
100
2009
2011
2013
2015
2017
intu
IPD monthly retail index
Operating review
43
Group like-for-like net rental income
Rent reviews, improved letting and turnover income
Capital investment
Vacancy impact
Units closed for redevelopment and/or repositioning
Other letting activity (eg bad debt; surrender premiums)
Increase in like-for-like net rental income
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
2017
+2.2%
+0.4%
-0.4%
-1.4%
-0.3%
+0.5%
2016
+2.3%
+0.8%
+1.7%
-0.6%
-0.6%
+3.6%
Rent from lettings and rent reviews
delivered 2.2 per cent rental growth.
Against previous passing rent, lettings
were on average up 7 per cent and rent
reviews up 9 per cent.
This growth was partially offset by the
1.4 per cent impact of units closed for
redevelopment and/or repositioning,
mainly from the former BHS stores which
are now substantially relet with excellent
lettings to quality retailers such as Next,
Primark and Uniqlo. These were not
income producing in 2017, but will come
back on stream in 2018.
As previously stated, we expect to deliver
medium term like-for-like net rental
income growth of 2 to 3 per cent per
annum, over the next three to five years,
and in 2018 we expect this to be in the
range of 1.5 to 2.5 per cent, subject to no
material tenant failures.
UK operating metrics
Occupancy
– of which, occupied by tenants trading in administration
Leasing activity – number, new rent
– new rent relative to previous passing rent
Footfall
Retailer sales (like-for-like centres)
Rent to estimated sales (exc. anchors and major space users)
2017
2016
96.1%
0.6%
179, £35m
+6%
+0.1%
-2.1%
12.1%
96.0%
0.5%
187, £35m
+4%
+1.3%
+0.2%
12.2%
Occupancy is 96.1 per cent, in line with
31 December 2016 and 30 June 2017.
This is equivalent to 97.0 per cent on the
industry standard EPRA calculation
(December 2016: 97.0 per cent).
We agreed 179 long-term leases in the
year, amounting to £35 million annual
rent, at an average of 6 per cent above
previous passing rent (like-for-like units)
and in line with valuers’ assumptions.
Retailers continue to focus on increasing
their space in prime, high footfall retail
destinations. Significant activity in the
year includes:
— new retail anchors, in the shape of key
fashion brands, upsizing to optimise
their offering and configuration. This
includes Primark, Next and River Island
upsizing at intu Merry Hill, as well
as Inditex and H&M expanding their
brand portfolios with Stradivarius
at St David’s and Monki at
Manchester Arndale
— international brands’ ongoing
recognition of the attraction of intu’s
destination shopping centres. Victoria’s
Secret, the US lingerie brand, and
Lovisa, an Australian accessories store,
have both added three stores. Colette,
the Australian handbag retailer,
has opened its second UK store at
Manchester Arndale and Inglot,
a Polish cosmetics brand, opened
its first store outside London at
intu Eldon Square
— brands recognising the benefit of
stores as part of their customer
acquisition, with Paul Smith opening
their first store in Manchester at
Manchester Arndale and Tesla
continuing their roll-out of stores at
intu Milton Keynes
— leisure operators continuing to grow in
flagship destinations with Puttshack,
Flip Out and Hollywood Bowl joining
Nickelodeon at the intu Lakeside
leisure extension and Gravity at the
refurbished Soar at intu Braehead
UK consumer market
Uncertainty regarding the final terms of
the UK’s exit from the EU is creating a
mixed picture on the state of the UK
consumer. Unemployment continues at
record low levels which should in turn
drive growth in personal income. However,
the increase in inflation from the
weakening of sterling after the EU
referendum vote is causing prices to rise
faster than wages at the moment which
impacts consumers’ disposable income.
The Asda benchmark index of household
disposable income has remained level
since December 2016.
Looking further ahead, the Bank of
England’s forecasts suggest that wage
growth will overtake inflation as we go
into 2018.
Consumer confidence, as measured by
GfK, has reduced slightly in 2017,
reflecting the negative sentiment on the
expectations for the economy, although
consumers’ view on their personal
finance situation over the next
12 months is stable.
These mixed messages have not had a
material effect on total non-food retail
spending, which remained unchanged in
2017 against the previous year (British
Retail Consortium total non-food retail
index), although, with the continued
growth in online, in-store sales were down
by around 2 per cent in the year.
International brands such as Victoria’s Secret
and Tesla are attracted to intu’s high
footfall centres
44
intu properties plc Annual report 2017
Operating review continued
Like-for-like net rental income growth
+0.5%
Footfall growth
+0.1%ShopperTrak benchmark -2.8%
259 shops opened or refitted in our UK
centres in 2017 (2016: 225 stores), around
9 per cent of our 2,800 units. Tenants
have invested around £89 million in these
stores, a significant demonstration of
their commitment to our centres.
units), leaving 7 per cent realisable from
other lease expiries and rent reviews.
The weighted average unexpired lease
term is 7.5 years (31 December 2016:
7.7 years) illustrating the longevity of
our income streams.
We settled 218 rent reviews in the year
for new rents totalling £47 million, an
average uplift of 9 per cent on the
previous rents.
Footfall improved by 0.1 per cent in the
year, significantly outperforming the
ShopperTrak measure of UK national
retail footfall which was down by
2.8 per cent, highlighting the attraction
of our compelling destinations against
the wider market.
Estimated retailer sales in our centres
were down 2.1 per cent predominantly
driven by some clothing retailers who had
a challenging year in 2017. In-store sales
figures take no account of the benefit of
the store to retailers’ online sales and are
further impacted by returns of online
sales. The ratio of rents to estimated sales
for standard units remained stable in the
year at 12.1 per cent.
Catering and leisure units now comprise
over 500 of our overall 2,800 leases and
have increased steadily in recent years in
a growing market. Reflecting changing
customer preferences, over the last
five years, this market has increased to
around 13 per cent of total rental income.
Over the same period, we have seen a
reduction in rental income from fashion
outlets to around 25 per cent.
The difference between annual property
income (see glossary) of £462 million and
ERV of £544 million represents
£37 million from vacant and development
units and reversion of £45 million,
8 per cent, from rent reviews and lease
expiry. Of the 8 per cent reversion, 1 per
cent is only realisable on expiry of leases
with over 10 years remaining (eg anchor
Delivering UK developments
In 2017, we invested £184 million in the
UK. This included £63 million on the
intu Watford extension, £58 million on
the acquisition of additional properties
(all currently income-generating) which
will be integral to future development
projects, £12 million on the leisure
extension at intu Lakeside and
£51 million on other active asset
management projects, including the new
Travelodge hotel at intu Lakeside and the
Next flagship store at intu Metrocentre.
Near-term pipeline
Looking ahead, we are progressing our
near-term pipeline of £562 million over
the next three years, reinforcing our
existing assets and delivering value-
enhancing returns. Our development
team continues to progress these projects
on budget and on time, with major
developments on site at intu Watford
and intu Lakeside and soon to start at
intu Trafford Centre (Barton Square) and
intu Broadmarsh, Nottingham.
We are committed to investing
£264 million, most of which is on key
ongoing projects:
— at intu Watford we remain on target
with our £180 million extension
expected to open in October 2018.
The development has topped out,
with the feature roof now installed and
anchor tenants due to start fitting out
in the next few months. The 380,000
sq ft project, anchored by Debenhams
and Cineworld, is two-thirds let by
space with Superdry and Hollywood
Bowl exchanged in the year. The
Operating review
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cost to completion of this project is
£80 million, and as previously stated,
the project is expected to deliver
a return on cost of 6 to 7 per cent,
including 1 to 2 per cent from the
existing centre
— at intu Lakeside we have commenced
construction of the £72 million
leisure extension, with £57 million of
cost remaining to completion. This
175,000 sq ft project is expected to
deliver a return on cost of 6.5 per cent
and has the four leisure attractions
Nickelodeon, Flip Out, Puttshack and
Hollywood Bowl exchanged
— at intu Trafford Centre, we have signed
Primark to anchor the expansion and
transformation of Barton Square. The
£72 million project will enclose the
courtyard, enhance interiors, allow
trading from two levels and provide
a fashion offer for the first time at
Barton Square. We are progressing
the procurement of the construction
works and expect the project,
delivering a return of 6 to 7 per cent,
to be completed by mid-2019
— active asset management projects
total £55 million and include the
Halle Place restaurant redevelopment
at Manchester Arndale, the creation
of flagship stores for Next at
intu Metrocentre and intu Merry Hill
and the redevelopment of former
BHS units for Uniqlo and Primark at
Manchester Arndale and intu Merry
Hill respectively.
Hill respectively. These projects are
expected to deli
expected to deliver a range of returns
between 6 and 1
between 6 and 10 per cent dependent
on the nature of
on the nature of the individual project
Our pipeline of plan
Our pipeline of planned projects amounts
to £298 million, wit
to £298 million, with a focus on extension
and redevelopment
and redevelopments:
— at intu Broadma
— at intu Broadmarsh we have a planned
redevelopment
redevelopment which is expected to
cost £81 million
cost £81 million and deliver a stabilised
initial yield of aro
initial yield of around 7 per cent.
We have signed
We have signed The Light cinema
and Hollywood
and Hollywood Bowl to anchor the
scheme and we
scheme and we would expect to have
the required leve
the required level of pre-lets and
completed deta
completed detailed design to enable
us to commit to
us to commit to this by the second half
of 2018
of 2018
— at intu Merry Hil
— at intu Merry Hill we are planning to
increase the cate
increase the catering and leisure to
bring it in line wi
bring it in line with other super-regional
centres. In total,
centres. In total, we expect to invest
around £100 million, of which
£70 million will be spent in the period
to 2020, delivering a return at a similar
level to that of the leisure extension
at intu Lakeside
— at intu Milton Keynes we expect to
invest £15 million commencing phase
one of the redevelopment of
under-utilised space
— other active asset management
projects are smaller in nature, across
all centres and at various stages of
feasibility. We have the flexibility to
start these projects when we have the
required level of pre-lets and expect
them to deliver similar returns to those
that we have committed to
Future opportunities
Beyond 2020, we continue to work on
securing the required planning approvals
and tenant demand to start £1.4 billion of
further projects which we would expect
to deliver stabilised initial yields of around
7 per cent. We have planning approvals
for extensions to intu Braehead,
intu Lakeside, intu Victoria Centre and
intu Milton Keynes and are at earlier
stages of the planning process for the
extension of Cribbs Causeway.
Making the brand count
The intu brand has positioned us well, as
the role of the shopping centre operator
has changed, to ensure our centres
remain relevant for both customers and
retailers. The unprompted awareness of
the intu brand increased to 26 per cent,
a threefold increase since 2015 when we
started monitoring, highlighting its
increasing recognition and value.
Additionally, our prompted awareness
has increased to 71 per cent in 2017,
from 63 per cent in 2016.
The combination of our national presence,
attractive digital offering and in-house
experiences team offers retailers and
brands promotional opportunities, which
in turn gives us a multidisciplinary
opportunity to help retailers flourish
within our centres.
The importance of identifying new ideas
and services emerging in the UK retail
market cannot be underestimated. In
2017 we launched intu Accelerate, an
incubator for these technologies and
services, identifying start-ups to pilot
Funding
We will fund our near-term pipeline from
cash and available facilities and from
recycling capital to deliver superior
returns. Cash and available facilities at
31 December 2017 were £833 million
on a pro forma basis including the
£148 million disposal of 50 per cent of intu
Chapelfield. Further recycling potential
lies in the introduction of partners into
some of our centres, although this would
have a short-term negative earnings
impact until the proceeds are reinvested.
In addition, we expect to raise finance
on near-term projects, such as the
intu Watford extension, as they complete,
to fund future opportunities.
Our affiliate website drives £9 million
of retailer sales
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intu properties plc Annual report 2017
Operating review continued
Our cutting-edge network
Our converged Cisco network across our
centres gives us a co-ordinated, managed
and increasingly secure technical platform
that benefits customers, tenants and staff.
This robust, high-bandwidth backbone
enables us to implement an array of new
technologies quickly and securely, more
cheaply and with a lower carbon footprint.
For instance, as well as free customer wifi,
we have been able to install large screens
at flagship centres, with programming from
our central production studio. Having the
network in place also enables us to
experiment with new ideas.
The network facilitates predictive
maintenance and standardisation of key
building management and security
systems, which in turn allow economies of
scale and interoperability between centres.
new concepts in centre and online,
including what is believed to be Europe’s
first customer services robot in a
shopping centre.
Customer service
Putting the customer first is embedded
in our culture. Our net promoter score,
a measure of customer service, ran
consistently high throughout the year
averaging 70 and demonstrating our
in-centre operational excellence.
intu Experiences
Curation of the customer experience is a
key element of our role in managing
shopping centres. Our in-house team,
intu Experiences, which generated
income of £22 million, is crucial in
delivering immersive brand partnerships,
mall commercialisation and advertising
which is complementary to the asset
strategy of each centre and meets our
quality standards.
An example of this end-to-end control is
the large format digital screen we have
introduced to each of our out-of-town
centres, providing new income streams
from global brands. We own all these
screens and, in many instances, produce
the content in-house – an area of growth
for us.
Similarly, choosing the brands we work
with promotionally is important in
delivering the right messages. Through
the Easter holidays we furthered our
collaboration with Nick Jr., Nickelodeon’s
pre-school television channel, adding
augmented reality functionality to our
in-centre app to deliver a new family
experience to our customers.
intu Digital
Our attractive digital offering through our
premium content publisher and shopping
platform, intu.co.uk, continued to grow
strongly and delivered online sales for
retailers of £9 million in the year, an
increase of 50 per cent against 2016.
We continue to develop the site, with
image recognition to assist product
search added in 2017. Shop Insider, the
premium content section of the site, saw
traffic up nearly 200 per cent in the year
to 1.5 million visits, leading to a 50 per
cent increase in visits to the shopping
pages. This highlights the power of quality
content to drive both physical and digital
sales, as shoppers continue to be ever
more considered in their purchases,
researching heavily online before
planned visits.
Key to this growth is our online marketing
expertise with over two million individuals
on our active marketing database and a
social media audience of over one million.
Seizing the growth
opportunity in Spain
Our Spanish strategy has been to create
a business of scale through acquisitions
and our pipeline of development
projects, concentrating on the top-10 key
catchments, where we now own and
manage three of Spain’s top-10 shopping
centres, with the acquisition of Madrid
Xanadú in 2017 (see Acquisitions and
disposals). In addition, we have three
development sites with the most
advanced project being intu Costa
del Sol, near Málaga.
Operational performance
The occupancy of our Spanish centres
is 97 per cent. We agreed 38 long-term
lettings in the year, amounting to over
£2 million annual rent, at an average of
25 per cent above previous passing rent
(like-for-like units). New names to our
centres included Quiz, Levis, Pandora,
Alcott and Xiaomi.
Footfall increased by 1.0 per cent in the
year and this includes the disruption in the
first half of 2017 from the redevelopment
work at intu Asturias where we developed
a previously underutilised area to
Operating review
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Acquisitions and disposals
In line with our strategy, we continue to
recycle capital to focus on our flagship
destinations where we have the
opportunity to deliver superior returns.
Acquisitions
In March 2017, we acquired Madrid
Xanadú, one of Spain’s top-10 shopping
centres, for an agreed headline price of
€530 million. The centre has many of the
key retailers, including El Corte Inglés, all
the Inditex fascias, Primark and Apple,
along with a strong leisure offering of
Spain’s only indoor ski slope, cinema,
bowling and soon-to-open aquarium and
Nickelodeon theme park. Footfall is
13 million, with a potential catchment of
four million people living within a
30-minute drive time. Over the medium
term, we see good reversionary potential,
with further growth opportunities from
key asset management initiatives which
will enhance the centre’s status as a truly
regional retail and leisure resort, drawing
visitors from a wider catchment.
In July 2017, we formed a joint venture
with TH Real Estate for them to take
ownership of 50 per cent of Madrid
Xanadú based on the original
acquisition price.
Disposals
In November 2017, we announced the
formation of a joint venture with LaSalle
Investment Management for them to
take ownership of 50 per cent of
intu Chapelfield, Norwich for a net
consideration of £148 million, in line with
the December 2016 valuation. The
transaction completed in January 2018.
introduce a supermarket and new retail
units. This opened in July with a strong
uplift in footfall.
We have increased the value of the
centres owned throughout the year
with growth in rental values being the
main driver. Our share of Puerto Venecia,
Zaragoza was valued at £231 million, an
increase of 4 per cent, and our share of
intu Asturias increased by 11 per cent,
to £141 million.
In 2018, we plan to roll out the intu brand
to Puerto Venecia and Madrid Xanadú.
Near-term pipeline
Our Spanish development pipeline
through to the end of 2020 amounts
to £397 million.
We have active asset management
projects of £57 million through to the
end of 2020 across all three centres with
a focus on enhancing the resort content
of each centre.
Our world-class project at intu Costa del
Sol will create a shopping resort of around
230,000 sq m. In 2017, the approval of the
General Plan of Torremolinos was a major
step forward, with the remaining consents
expected in the coming months. We have
very strong interest from tenants and
would anticipate being on site in the next
12 months.
The land, with planning mostly approved,
was independently valued at the end of
2017, delivering a surplus of £74 million.
The total cost to completion of the
development is expected to be around
£600 million (£340 million through to
2020), excluding the land, and deliver a
stabilised initial yield of around 7 per cent.
We expect to fund the project through
bank and other finance, and introduce a
partner at a later stage.
Future opportunities
We continue to develop plans at the two
other sites in Valencia and Vigo, having
decided not to progress with our
development option in Palma. At this
point, intu Valencia, where we have
renewed support from the regional
government, is the most likely to follow
intu Costa del Sol.
Spanish market
The Spanish economy is still one of
Europe’s fastest growing economies and
this should continue in 2018 with its GDP
growth expected to be one of the highest
of the major European economies. For the
consumer, unemployment is at its lowest
level for several years and consumer
confidence at its highest. This in turn
benefits retail sales which are further
enhanced by record levels of tourists
which have increased by 20 per cent over
the last two years.
The investment market remains strong
with continuing investor confidence in
Spanish real estate supported by an
economy that is growing. With banks
willing to lend against Spanish assets, the
weight of money in the market looking to
invest in quality assets has continued to
strengthen the market. Partly due to the
lack of development in recent years, prime
regional shopping centres are scarce
which is reflected in good demand.
Continued evolution of intu Asturias with the
remodelled food court and new lower level
48
intu properties plc Annual report 2017
Financial review
Our results for the year show growth in net rental
income and underlying earnings, with net asset value
per share stable
Overview
We have recorded underlying earnings
of £201.0 million for the year ended 31
December 2017, slightly higher than the
£200.0 million recorded in 2016. This
reflects 0.5 per cent growth in like-for-like
net rental income as well as the impact of
2017 and 2016 acquisitions and disposals.
Underlying earnings per share of
15.0 pence is unchanged from 2016.
Profit for the year attributable to owners
of intu properties plc of £216.7 million has
increased by £34.0 million, driven by a
surplus on property revaluations of £47.3
million (2016: deficit of £63.8 million), as
well as the change in fair value of financial
instruments, a surplus of £23.0 million
(2016: charge of £16.9 million), partially
offset by 2016 gains of £74.1 million on
the sale of our interest in Equity One and
£34.6 million on the acquisition of the
remaining 50 per cent of intu Merry Hill.
NAV per share of 411 pence has increased
7 pence from 2016, which when taking
account of the dividend paid in the period
of 14.0 pence delivers a total financial
return for the year of 5.2 per cent. NAV
per share includes a timing impact within
retained earnings of 4 pence in relation to
our Spanish development partner
Eurofund’s expected future interest in
the share capital of the intu Costa del Sol
development company. The positive
impact on retained earnings is expected
to reverse, once these arrangements are
concluded, with the Eurofund interest to
be included in non-controlling interests
during 2018. In this event NAV per share
would be 407 pence.
Presentation of information
We account for our interests in joint ventures using the equity method as required by IFRS 11 Joint Arrangements. This means that the
income statement and the balance sheet include single lines for the Group’s total share of post-tax profit and the net investment in joint
ventures respectively.
Management review and monitor performance as well as determine the strategy of the business primarily on a proportionately consolidated basis.
This includes the Group’s share of joint ventures on an individual line-by-line basis rather than a post-tax profit or net investment basis. The figures
and commentary presented are consistent with our management approach as we believe this provides a more meaningful analysis of the Group’s
performance. The other information section provides reconciliations of the income statement and balance sheet between the two bases.
Alternative performance measures are also used to assess the Group’s performance. The significant measures are summarised as follows:
Alternative performance
measure used
Like-for-like amounts
Rationale
Like-for-like amounts are presented as they indicate operating performance as distinct from the impact of acquisitions or disposals. In
respect of property, the like-for-like measure relates to 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. Further analysis is
presented in the other information section and in the operating review.
Net asset value (NAV)
(diluted, adjusted)
NAV (diluted, adjusted) is presented as it is considered to be a key measure of the Group’s performance. The key difference from EPRA
NAV, an industry standard comparable measure, is the exclusion of interest rate swaps not currently used for economic hedges of debt
as, in our view, this better allows management to review and monitor the Group’s performance. A reconciliation of NAV (diluted,
adjusted) to NAV attributable to owners of intu properties plc is provided in note 13(a) as well as on page 51 and to EPRA NAV within
the other information section.
Underlying earnings
Underlying earnings is presented as it is considered to be a key measure of the Group’s recurring income performance and an indication
of the extent to which dividend payments are supported by underlying operations (see underlying profit statement in the other
information section). It excludes property and derivative valuation movements, exceptional items and related tax. The key difference
from EPRA earnings, an industry standard comparable measure, relates to adjustments in respect of exceptional items where EPRA is
prescriptive about the adjustments that can be made. A reconciliation of underlying earnings to profit for the year attributable to
owners of intu properties plc is provided in note 12(c) as well as on page 49 and to EPRA earnings within the other information section.
Financial review
49
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In March we continued to increase our
presence in Spain and strengthen our
quality portfolio, acquiring 100 per cent
of Madrid Xanadú for €517.3 million
(£453.9 million). As part of this we
arranged a €263 million loan facility, with
a 2022 maturity. In July we disposed of
50 per cent of Madrid Xanadú to TH Real
Estate based on the original acquisition
price, retaining a 50 per cent interest.
Further, in November we announced the
formation of a joint venture with LaSalle
Investment Management (acting on
behalf of Greater Manchester Pension
Fund and West Yorkshire Pension Fund)
for them to take ownership of 50 per cent
of intu Chapelfield for initial net proceeds
of £148.0 million. This transaction has
now completed following the receipt of
EU merger approval in January 2018.
As a result, in accordance with IFRS, the
net assets of intu Chapelfield have been
classified as held for sale at 31 December
2017 in the balance sheet.
Our financing metrics remain strong
mainly due to our continued refinancing
activity. During the year we refinanced
over £1.1 billion of debt, including the
refinancing of intu Milton Keynes and
intu Merry Hill, securing financing on
Madrid Xanadú and additional financing
on intu Trafford Centre. Our interest cover
ratio of 1.94x is broadly unchanged in the
year (31 December 2016: 1.97x) with
satisfactory headroom above our target
minimum level of 1.60x.
At 31 December 2017, pro forma for
the 50 per cent part disposal of
intu Chapelfield for initial net proceeds
of £148.0 million, our debt to assets ratio
has increased to 45.2 per cent
(31 December 2016: 43.7 per cent),
remaining below our target maximum
level of 50 per cent. Also on a pro forma
basis, we had cash and available facilities
of £833.1 million (31 December 2016:
£922.3 million) which have decreased in
the year due to the acquisition and part
disposal of Madrid Xanadú as well as
buying back and cancelling £139.6 million
of the £300 million 2.5 per cent
convertible bonds, maturing Autumn
2018, partially offset by the net proceeds
from the part disposal of intu Chapelfield.
Income statement
Underlying earnings (£m)
200
175
150
125
100
Underlying earnings increased to
£201.0 million from £200.0 million at
31 December 2016. The key movements
are shown in the chart to the right.
Underlying earnings per share is
consistent with prior year at 15.0 pence.
Net rental income increased £13.0 million
in 2017 to £460.0 million due to the
acquisition of Madrid Xanadú in March
2017, the acquisition of the remaining
50 per cent of intu Merry Hill in June 2016
and 0.5 per cent growth in like-for-like net
rental income, partially offset by the
impact of the disposal of intu Bromley
in December 2016.
Like-for-like net rental income increased
by £2.1 million, 0.5 per cent, driven by
rental growth from new lettings and rent
reviews, partially offset by the impact of
the redevelopment and reletting of the
former BHS units which were fully income
producing in the first half of 2016 (see
operating review).
Administration expenses increased by
£3.0 million in 2017 to £41.6 million,
primarily due to increased headcount in
Spain partially offset by a cost reduction
programme in the second half of the year
from which we will benefit in 2018.
Income statement summary
Underlying earnings
Adjusted for:
Revaluation of investment and
development property
Gain on acquisition of businesses
Loss on disposal of subsidiaries
(Loss)/gain on sale of other investments
Administration expenses – exceptional
Exceptional finance costs
Change in fair value of financial instruments
Tax on the above
Share of joint ventures’ items
Share of associates’ items
Non-controlling interests in respect of the above
Profit for the year attributable to owners
of intu properties plc
200.0
+2.1
+10.9
-9.6
-3.0 +0.6 201.0
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2017
2016
Share of
joint
ventures
£m
Group
including
share of joint
ventures
£m
Group
including
share of joint
ventures
£m
n/a
201.0
200.0
16.5
–
–
(0.3)
(0.7)
–
1.0
1.3
(17.2)
–
(0.6)
47.3
–
(1.8)
(0.3)
(6.6)
(33.0)
23.0
(22.7)
–
0.4
9.4
(63.8)
34.6
(0.3)
74.1
(2.9)
(32.9)
(16.9)
(16.5)
–
1.1
6.2
Group
£m
201.0
30.8
–
(1.8)
–
(5.9)
(33.0)
22.0
(24.0)
17.2
0.4
10.0
216.7
n/a
216.7
182.7
Underlying earnings per share (pence)
15.0p
n/a
15.0p
15.0p
50
intu properties plc Annual report 2017
Financial review continued
Net rental income margin
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 (excluding direct vacancy costs)
Net finance costs have increased by
£9.6 million in 2017 to £222.5 million
primarily due to the increase in net
external debt for the acquisition of
Madrid Xanadú and capital expenditure
in the year.
As discussed in the overview, profit
attributable to owners of intu properties
plc is £216.7 million, an increase from the
£182.7 million reported for the year
ended 31 December 2016.
Our investment in joint ventures
contributed £35.5 million to the profit of
the Group (2016: £32.1 million) including
£18.3 million to underlying earnings
(2016: £19.8 million) and a gain on
property valuations of £15.9 million
(2016: £14.2 million).
As detailed in the table above, our net
rental income margin has reduced to 87.5
per cent primarily due to higher void costs
from the former BHS units. Property
operating expenses largely comprise car
park operating costs and the Group’s
contribution to shopping centre
marketing programmes. Our ratio
of total costs to income, as calculated
in accordance with EPRA guidelines,
remains low at 15.1 per cent (see other
information section).
Year ended
31 December
2017
£m
546.2
(20.5)
525.7
(29.1)
(3.2)
(33.4)
460.0
87.5%
15.1%
Year ended
31 December
2016
£m
532.6
(25.4)
507.2
(26.0)
(2.5)
(31.7)
447.0
88.1%
15.0%
Balance sheet
The Group’s net assets attributable
to shareholders have increased by
£96.2 million to £5,075.0 million at
31 December 2017, while net assets
(diluted, adjusted) have increased by
£85.0 million to £5,522.7 million at
31 December 2017.
NAV per share (diluted, adjusted) at
31 December 2017 has increased 7 pence
from the prior year to 411 pence, the key
movements are shown in the chart to the
right. This was driven principally by the
revaluation surplus in the year of 4 pence
and the timing impact within retained
earnings of 4 pence in relation to our
Spanish development partner Eurofund’s
expected future interest in the share
capital of the intu Costa del Sol
development company. The positive
impact on retained earnings is expected
to reverse, once these arrangements are
concluded, with the Eurofund interest to
be included in non-controlling interests
during 2018. In this event NAV per share
would be 407 pence.
Investment and development property
has increased by £248.0 million
primarily due to capital expenditure
of £246.7 million, the impact of the
acquisition and subsequent
50 per cent disposal of Madrid Xanadú
of £225.3 million and a surplus on
revaluation of £47.3 million, partially
offset by the £302.0 million transfer
of intu Chapelfield to assets held for sale.
Our net investment in joint ventures is
£735.5 million at 31 December 2017
(31 December 2016: £587.6 million), which
includes the Group’s share of net assets,
on an equity accounted basis, of
£452.6 million (31 December 2016:
£355.4 million) and loans to joint ventures
of £282.9 million (31 December 2016:
£232.2 million). The movement in the
year primarily reflects the addition of
Madrid Xanadú from 31 July, when 50 per
cent was sold to TH Real Estate, which is
accounted for as a joint venture rather
than as a 100 per cent owned subsidiary.
Investments in associates of £64.8 million
represent our interests in India, which
comprise a 32 per cent interest in Prozone
(£45.1 million), a shopping centre
developer listed on the Indian stock
market, and a direct interest in Empire
(£19.7 million). Prozone and Empire own
and operate shopping centres in
Coimbatore and Aurangabad, with
Coimbatore recently opened in 2017.
Net external debt of £4,835.5 million has
increased by £471.4 million primarily from
funding our acquisition of Madrid Xanadú
as well as capital expenditure in the year.
Cash including the Group’s share of joint
ventures has reduced slightly by
£13.4 million to £278.2 million and gross
debt has increased by £458.0 million
to £5,113.7 million.
Derivative financial instruments comprise
the fair value of the Group’s interest rate
swaps. The net liability at 31 December
Net asset value per share (pence)
450
404
+15
-14
+4
+4
-3
+1
411
300
150
0
6
1
0
2
c
e
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o
r
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g
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m
i
i
t
t
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e
m
p
o
l
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v
e
d
n
i
a
p
S
Balance sheet summary
Investment and development property
Investment in joint ventures
Assets and associated liabilities classified
as held for sale
Investment in associates and other investments
Net external debt
Derivative financial instruments
Other assets and liabilities
Net assets
Non-controlling interest
Attributable to shareholders
Fair value of derivative financial instruments
Other adjustments
Effect of dilution
Net assets (diluted, adjusted)
2017
2016
Share of
joint
ventures
£m
Group
including
share of joint
ventures
£m
Group
including
share of joint
ventures
£m
1,013.1
(735.5)
10,192.5
–
9,944.5
–
–
–
(249.9)
(2.3)
(22.2)
3.2
(3.2)
n/a
2.3
(2.3)
–
n/a
302.9
81.6
(4,835.5)
(349.8)
(259.3)
5,132.4
(57.4)
5,075.0
349.8
97.9
–
5,522.7
–
80.7
(4,364.1)
(380.0)
(234.7)
5,046.4
(67.6)
4,978.8
380.0
76.3
2.6
5,437.7
Group
balance
sheet
£m
9,179.4
735.5
302.9
81.6
(4,585.6)
(347.5)
(237.1)
5,129.2
(54.2)
5,075.0
347.5
100.2
–
5,522.7
NAV per share (diluted, adjusted) (pence)
411p
n/a
411p
404p
2017 is £349.8 million, a decrease
of £30.2 million from 2016, primarily
due to cash payments in the year
and the increases in sterling swap rates,
with the five-year and 10-year rates
increasing by 17bps and 4bps respectively.
Cash payments in the year totalled
£47.1 million, £26.1 million of which has
been classified as an exceptional finance
cost as it relates to payments in respect
of unallocated interest rate swaps. The
balance of the payments has been
included as underlying finance costs as
it relates to ongoing interest rate swaps
used to hedge debt.
As previously detailed, we have a number
of interest rate swaps, entered into
some years ago, which are unallocated
due to a change in lenders’ practice.
At 31 December 2017 these interest
rate swaps have a market value liability
of £235.4 million (31 December 2016:
£253.2 million). It is estimated that we
will be required to make cash payments
on these interest rate swaps of around
£28.5 million in 2018, reducing to around
£19 million per annum in 2021.
Assets and associated liabilities classified
as held for sale of £302.9 million relate
to intu Chapelfield.
Financial review
51
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The non-controlling interest at
31 December 2017 relates primarily
to our partner’s 40 per cent stake in
intu Metrocentre.
We are exposed to foreign exchange
movements on our overseas investments.
At 31 December 2017 the exposure is
10.6 per cent of net assets attributable
to shareholders. Once the Eurofund
expected future interest in the share
capital of the intu Costa del Sol
development company concludes, we
expect this to reduce to 9.7 per cent,
below the Group’s policy of a maximum
of 10 per cent.
Cash flow
During 2017 cash and cash equivalents
decreased by £26.6 million.
Cash flows from operating activities of
£140.9 million is £9.5 million higher than
2016, primarily due to the acquisitions in
the year.
Cash flows from investing activities
reflect the net cash outflow for our
acquisition and then subsequent 50 per
cent part disposal of Madrid Xanadú as
well as cash outflow related to capital
expenditure during the year.
Cash flows from financing activities
include net debt drawdowns of
£539.2 million primarily to fund our
acquisition of Madrid Xanadú as well
as development spend. We paid cash
dividends during the year of
£188.0 million.
Cash flow summary
Group cash flow as reported
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Foreign currency movements
Net decrease in Group cash and cash equivalents
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
140.9
(518.1)
350.2
0.4
(26.6)
131.4
(243.4)
88.7
1.4
(21.9)
intu Chapelfield
A joint-venture partner was introduced in line
with the December 2016 valuation
52
intu properties plc Annual report 2017
Financial review continued
Financing
Debt structure
We have carried out significant
refinancing activity in recent years which
has resulted in diversified sources of
funding, including secured bonds plus
syndicated bank debt secured on
individual or pools of assets, with limited
or no recourse from the borrowing
entities to other Group companies outside
of these arrangements. Our corporate-
level debt remains limited to the
Revolving Credit Facility (RCF) as well
as the £375 million 2.875 per cent
convertible bonds 2022 and
£160.4 million outstanding in respect
of the 2.5 per cent convertible
bonds 2018.
During 2017 we undertook the following
financing activities:
— agreed a new £140 million facility
secured against intu Milton Keynes,
replacing the previous £125 million
loan, maturing in 2019
— agreed a €263 million (£231 million)
facility in connection with the
acquisition of Madrid Xanadú,
maturing in 2022; intu’s share is
€131.5 million
— agreed a new £488 million facility
secured on intu Merry Hill, replacing
the previous £500 million short-
term facility put in place in 2016 on
acquisition of the remaining 50 per
cent, maturing in 2024
intu Merry Hill
We refinanced intu Merry Hill in the year,
with a new £488 million debt facility.
Debt maturity (£m)
1,000 183.6
286.9
87.9
792.7
774.0 958.3 602.7
26.5
28.3
261.6 843.2
231.1
800
600
400
200
0
2018* 2019
2020
2021
2022
2023
2024
2025
2026
2027
2033+
2028-
2032
* 2018 includes £160 million convertible bond which at current level is now expected to be paid in cash.
— agreed a £250 million loan secured on
intu Trafford Centre, maturing in 2022
— purchased and subsequently cancelled
£139.6 million of the £300 million
2.5 per cent convertible bonds 2018.
£160.4 million of these convertible
bonds remain outstanding at
31 December 2017
Since the year end, we have agreed a new
£74 million facility secured on our interest
in intu Chapelfield, maturing in 2023.
The chart above illustrates that we have
no major refinancing requirement due
until 2021.
On a pro forma basis, our debt to assets
ratio has increased to 45.2 per cent since
31 December 2016 due to the acquisition
and part disposal of Madrid Xanadú and
remains below our target maximum level
of 50 per cent. Our weighted average
debt maturity has decreased to 6.6 years
and the weighted average cost of debt
has decreased slightly to 4.2 per cent
(excluding the RCF).
Interest cover of 1.94x is broadly
unchanged in the year and remains above
our targeted minimum level of 1.60x.
We use interest rate swaps to fix interest
obligations, reducing any cash flow
volatility caused by changes in interest
rates. The proportion of debt with interest
rate protection on a pro forma basis has
increased in the year to 95 per cent within
our policy range of between 75 per cent
and 100 per cent.
Debt measures
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
1 Pro forma for the £148 million disposal of 50 per cent part of intu Chapelfield.
2 Pro forma for the refinancing of intu Milton Keynes, completed February 2017.
31 December
2017
45.2%1
1.94x
6.6 years
4.2%
95%
£833.1m1
31 December
2016
43.7%
1.97x
7.1 years2
4.3%
88%
£922.3m
Covenants
Full details of the debt financial
covenants are included in the other
information section of this report. We are
in compliance with all of our covenants
and regularly stress test them for
changes in capital values and income.
A 25 per cent fall in property values and
a 10 per cent reduction in income would
only require a £6 million equity cure.
Capital commitments
We have an aggregate commitment
to capital projects of £267.6 million at
31 December 2017 (31 December 2016:
£257.0 million).
In addition to the committed expenditure,
we have an identified uncommitted
pipeline of active management projects,
major extensions and developments that
may become committed over the next
three years (see operating review).
Other information
Tax policy position
The Group has tax exempt status in the
UK (REIT) and for certain investments in
Spain (SOCIMI) which provide exemption
from corporation tax on rental income
and gains arising on property sales, with
tax instead being paid at shareholder
level. See glossary for further information
on REITs and SOCIMIs.
The Group’s principle of good governance
extends to our responsible approach to
tax. We look to minimise the level of tax
risk and at all times seek to comply fully
with our regulatory and other tax
obligations and to act in a way which
upholds intu’s reputation as a responsible
corporate citizen by regularly carrying out
risk reviews, seeking pre-clearance from
HMRC in complex areas and actively
engaging in discussions regarding
proposed changes in the taxation system
that might affect the Group. It remains
important to our stakeholders that our
approach to tax is aligned to the long-
term values and strategy of the Group.
Financial review
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We have published ‘intu’s Approach
to Tax’ in respect of the year ending
31 December 2017 on the Group’s
website intugroup.co.uk which provides
further information about the Group’s
tax strategy.
We pay 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 2017 the total
of such payments to tax authorities was
£28.5 million (2016: £20.6 million), of
which £26.0 million (2016: £20.0 million)
was in the UK and £2.5 million (2016:
£0.6 million) in Spain. In addition, we also
collect 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 £280.6 million in
2017 (2016: £292.2 million).
Dividends
The Directors are recommending a final
dividend of 9.4 pence per share bringing
the amount paid and payable in respect
of 2017 to 14.0 pence, unchanged from
2016. A scrip dividend alternative may be
offered. Details of the apportionment
between the PID and non-PID elements
per share will be confirmed in due course.
At 31 December 2017, the Company has
distributable reserves of £977 million,
sufficient to cover around five years of
dividends at the 2017 level. The Company
typically pays dividends which are covered
by the current year earnings of the Group
and does not anticipate that the Group’s
level of distributable reserves will create
any restrictions on this approach in the
foreseeable future.
Matthew Roberts
Chief Financial Officer
22 February 2018
Madrid Xanadú
In March we increased intu’s presence in Spain
with the acquisition of a centre in the capital
54
intu properties plc Annual report 2017
Our people
We are proud of our employees’ commitment to our vision
and purpose – creating compelling and joyful experiences
for customers and helping retailers flourish
Highlights of the year
— all our centres achieve the Investors in
People gold award
— our first apprentices take up
permanent roles in intu
— pensions auto-enrolment successfully
implemented for intu Retail Services
— our consolidated staff data system,
iTrent, extended to intu Retail Services
Our culture
Our purpose is simple – to create
compelling, joyful experiences that surprise
and delight our customers and make them
smile. This is the key to achieving our
commercial focus – running the most
popular shopping centres in the UK and
Spain. It is an intentionally simple focus
that can be understood and delivered by
everyone in the organisation.
Our culture permeates our business.
Everyone, regardless of role or seniority,
goes through the same brand immersion to
understand our purpose and our values.
Our values – bold, creative, genuine –
encourage us all to behave in the right way
and do the right thing: for our customers,
our retailers, the environment and society.
Our people understand if they apply our
values in their work they will help create
a successful and responsible business.
Our culture drives our business.
From our apprentices to our senior asset
managers our employees are vital to
fulfilling our purpose. Our people are
talented individuals, and our culture
enables them to be bold, creative and
genuine in their work to make shopping at
intu a joyful experience for our 35 million
visitors and thousands of retailers. In
return, we aim to be a great employer,
promoting diversity and inclusion, treating
our employees fairly and enabling them
to grow professionally and personally.
A united and successful team
We employ 2,589 staff: 2,467 employed
in 17 locations across the UK, in 16
centres and our head office in London, 39
in our Madrid office and now 83 at Madrid
Xanadú. Of the UK staff, 2,036 are directly
employed by our in-house facilities
company, intu Retail Services. This year
we have extended the unified employee
database and payroll system, iTrent, to
bring all our intu Retail Services and intu
Management Services employees
together under a single system for the
first time.
We have strong recruitment processes to
recruit the best people, and a system that
gives employees career progression so we
can fill roles internally. This year 54 staff
were recruited from within and 375
externally. Many of these were to new
roles as we adapt to changing markets.
We are the first shopping centre landlord
to be able to boast the gold Investors in
People award across our UK portfolio.
The award recognises our commitment to
our people and their role in our business.
Diverse and inclusive
Diversity is important to us – as a people
business with over 400 million customer
visits a year our workforce should both
reflect and understand our customers
and the communities around our centres.
We have at least 27 different nationalities
and the ethnic background of our staff is
close to that of the country as a whole.
We maintained our position in the top
20 per cent of FTSE 250 and 350
companies for the number of women at
board, senior and executive management
levels – with over 30 per cent of female
staff at this level (FTSE Women Leaders,
Hampton-Alexander Review 2017). We
continued to work with the Mentoring
Foundation, to enhance the opportunities
for women to reach executive roles.
In order to attract a diverse range of
candidates, we are part of an industry
initiative, Pathways to Property, to provide
work experience for school students from
less traditional backgrounds
We are signed up to the National Equality
Standard (NES). Having completed the
initial assessment process we have a plan
in place to meet the standard by 2019.
Our people
55
Gender pay gap
We welcome the new gender pay gap
legislation and increased pay
transparency that will result. The
gender pay gap compares the average
pay for men and women in our business.
If there are more men than women in
senior positions, as is currently the case
at intu, this results in the overall average
of the pay of men being higher than
that of women.
The gender pay gap is different to equal
pay, which takes into account the nature
of a role and its seniority. We regularly
review the pay across the organisation
with the aim of ensuring that the pay of
men and women is the same for
equivalent roles and seniority.
Our median pay and bonus gaps are
significantly smaller than the national
picture with a slightly higher proportion
of women than men receiving bonuses.
Our higher mean bonus gap is largely
due to the current significantly higher
proportion of men in the most
senior positions.
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Pay gap
Difference between the average
pay of men and women
Bonus gap
Difference between the average
bonus paid to men and women
Proportion
of women
receiving a bonus
Proportion
of men receiving
a bonus
Median
Mean
2.6%
7.8%
0.0%
51.5%
84.7%
84.5%
The chart below shows the gender pay gap for different groups of employees within the business. In a number of areas we have
a negative gender pay gap, which means that the average pay of women is higher than that of men.
Super regionals
Larger city centres
Smaller city centres
Total employees 1,145
Total employees 568
Total employees 282
Overall gender pay gap
(based on mean hourly rate)
–9.90%
–1.61%
39%
61%
35%
65%
+4.39%
34%
66%
Regional centre directors,
general managers, senior
asset managers
Asset managers, marketing
managers, operations managers,
centre-based management roles
Supervisory, admin,
front line delivery roles
(including technicians)
–1.48%
–8.63%
–8.63% +9.99%
–8.63%
+3.08%
–7.97%
–3.14%
+12.10%
–8.63%
–9.10%
–3.16%
Female employees
Male employees
Read more at intugroup.co.uk
A good job
Part of being a great employer is treating
our staff members fairly and paying them
properly. All our staff over 18 who have
completed their probation are paid above
the National Living Wage, even staff not
strictly covered by regulation. We ended
all zero-hour contracts in 2016.
We are committed to ending the gender
pay gap and we comply fully with the
Equality Act Gender Pay Gap Information
regulations as they come into force. See
infographic above.
Talent development
Our learning and development team run
a programme of internal and external
training for the whole business. Customer
Journey training helps centre teams
enhance the customer experience of intu.
Steps to Success training, for security,
customer and environmental services
teams, ensures the services they provide
are consistent and legally compliant.
These programmes keep us at the
forefront of being a master operator
and enable us to deliver our world
class service.
56
intu properties plc Annual report 2017
Our people continued
Age profile
Under 35
35 – 55
Over 55
32%
47%
21%
UK gender profile
Female
1,017
(2016: 1,048)
Male
1,450
(2016: 1,507)
UK gender profile senior managers
Female
10
(2016: 12)
Male
31
(2016: 30)
We have expanded our webinar-based
training for management development
and continued our Leadership
Development programme to develop
individuals. This year eight candidates
completed a 12-month development
journey to cultivate their leadership skills.
intu was the first major property
company to have a national
apprenticeship scheme, now in its third
year. The pilot group have completed
their training and all six gained
permanent jobs within the business. The
second cohort of 14 has moved into their
second year and nine new recruits will
begin their training in 2018.
Rewarding excellence
Since 2016 we have been piloting
performance management schemes that
connect more closely to our business
strategy, linking performance, strategy
and reward. We are now rolling these out
across the business and have recruited a
rewards manager to benchmark staff,
harmonise terms and conditions and
develop more tailored incentive and
recognition schemes.
above and beyond. In 2017, its third year,
around a thousand employees were
rewarded for making people smile.
This year’s winner was Joseph Mifsud,
an Orient Support Assistant at
intu Trafford Centre.
Employee engagement
Ensuring our staff understand our
business and know how they can
contribute to intu’s success continues to
be crucial to our progress. It has been
integral to our success so far and was part
of our promise to our staff when we
rebranded to intu. We use a range of
channels to communicate with staff:
our intranet Mint, employee magazine
Chorus, insight, strategy presentation,
twice-yearly results presentations and
staff briefings. Each location has its own
staff forum.
Since November 2012 we have run an
annual employee survey with consistently
high employee engagement scores (in the
region of 750). The 2017 staff survey has
been postponed until spring 2018 to allow
us to consider the information the survey
has supplied, combined with information
from all our other sources, such as
Investors in People, NES, customer
surveys, Tell intu and other insight, to
put really meaningful actions in place.
We continue to encourage staff to
achieve their personal and professional
goals and to take part in our corporate
responsibility, community support and
sustainability programmes. More than
one in five took advantage of the working
days intu makes available for volunteering
activity, double last year’s number.
Our plans for 2018
— build on the intu culture in the UK and
Spain through stronger performance
management and staff engagement
— focus on equality, diversity and
inclusion, including further progress
to reduce the gender pay gap
— enhance the talent pipeline through
graduate, management and leadership
development schemes
— greater alignment of intu Retail
Services terms and conditions
and processes
— mitigate the risk of employee
Our employee reward and recognition
programme Win Your Dream celebrates
employees across intu who have gone
uncertainty leading to short-term
skill gaps during the proposed
corporate transaction
The graduates
Senior development managers Oliver Hunt
and Simon Crouch started as graduates at
intu. “From the beginning we were given
real projects and were rewarded for our
hard work and commitment,” says Simon.
“My early work covered activities from
planning to procurement, from purchasing
an interest to selling a centre,” says Oliver.
They are now managing multimillion pound
development projects and mentoring the
next generation of graduates. “Retail has
always been a dynamic sector,” says Simon.
“Working at intu gives us a real opportunity
to help shape the future of shopping.”
Human rights
At intu we respect the dignity, liberty and
equality of everyone we work with. 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, to ensure
all staff earn above the National Living
Wage, and enjoy fair working conditions.
Fair treatment of people who work for
intu or our suppliers is a key focus of our
corporate responsibility approach.
Modern Slavery Act
This year we worked to implement the
requirements of the Modern Slavery Act,
including a new policy on Modern Slavery
and Human Rights and communications
to our suppliers on their responsibilities.
Read more at intugroup.co.uk
Corporate responsibility
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Corporate responsibility
Making a meaningful difference is important to us. We work with our
stakeholders to create shared benefit through economic value generation,
community investment and sustainable use of resources
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to market factors, including China’s
ban on the importing of waste for
recycling, our recycling rate has fallen
by 11 per cent to 63 per cent. Recycling
rates will continue to fall until new
markets are found as there is insufficient
provision in the UK to handle the quantity
we produce.
Last year we set up the Green Lab,
our sustainability innovation group,
to drive forward a range of sustainability
initiatives across the business. Following
the introduction of renewable energy
generation and food waste trials last year,
this year we have focused on working with
sustainability consultants, Bioregional, to
test new innovations that can be rolled
out across the business. We are trialling
some of these ideas on the upcoming
intu Broadmarsh redevelopment.
Next year we plan to explore further
innovations in our operations.
Our strong and open relationships with
our stakeholders means we have
delivered real and lasting change in our
communities. This year our wide-ranging
community investment – which focuses
on skills and employment, health and
wellbeing, and social inclusion – benefited
3,645 people. Feedback showed 71 per
cent of responders reported experiencing
a positive change in their quality of life.
Jobs in our centres continue to form a
significant proportion of the UK’s retail
sector employment – we are responsible
for about 3 per cent of all jobs in the
sector. The majority of these are locally
employed, meaning the wealth we create
is captured locally.
This year we are reporting on our
sustainability performance in Spain in our
CR report and plan to include our Spanish
assets in our future commitments.
Read more on our performance in the UK
and Spain in our 2017 CR report
Our culture of behaving responsibly
underpins our approach to CR. We work
with our stakeholders to address social
and environmental issues that deliver
value beyond immediate financial return.
We focus on delivering positive change in
our communities and on operating with
minimum impact on the environment.
Good relationships and partnerships are
integral to everything we do.
Operational review
We have had a successful year in both our
work with communities and our efforts to
reduce our environmental impact, having
met many of our 2020 environmental
targets three years early.
We have surpassed our ambitious target
of a 50 per cent reduction in carbon
intensity by 2020 based on our 2010
levels. Using a mix of technology and
behaviour change interventions we are
proud this year to have reached a total
carbon reduction of 58 per cent from
2010 emissions. This has saved 144,000
tonnes of carbon and reduced our energy
costs by £25 million.
We also maintained our ‘zero waste to
landfill’ status for the second year,
meaning we diverted 28,000 tonnes of
waste from landfill and saved £2.4 million
in associated landfill costs. However, due
Accessible intu
This year we held the first mass Autism
Quiet Hours with the National Autistic
Society. On 2 October, we dimmed our
lights, turned down the music and
welcomed autistic customers to enjoy our
centres in a quieter environment. We were
delighted that every retailer also got
involved. Each centre is now creating
their own regular quiet hours for
their customers.
We are delivering additional support for the
wide range of disabilities our customers
may live with. We launched a personal
shopping service for blind customers at
intu Braehead and intu Merry Hill. intu staff
volunteers accompany customers with
visual impairments around our centres to
assist them in their shopping. Not only that,
many of our customers and staff volunteers
have struck up friendships, making the visit
not just about getting those special
purchases but also a social visit too.
Read more in our 2017 CR report
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intu properties plc Annual report 2017
Corporate responsibility continued
Making a meaningful difference: our contributions in 2017
Economic value we generate
£4.6 billion GVA
We are investing in
the future
We contribute to the local
and national economy
£1.9bn
UK development pipeline over10 years
£281m
business rates paid by intu and our tenants
Our centres directly
support a
£1.8bn
wage bill per annum
Recognised by:
Community
Environment
Our commitments
— support relevant community initiatives
— extend employability programmes to
all centres by 2025
Our 2020 targets
— 50% reduction in carbon emissions
— 99% of waste diverted from landfill by 2020
— 75% of waste generated recycled
Donations
Positive change
2,000
£1.9m
donated
1,500
1,000
500
0
Value of time
In-kind
Cash
Facilitated
£703,885
£512,884
£523,750
£178,853
Number of beneficiaries measured: 2,278
Change in behaviour
Change in skills
Change in quality of life
Employee engagement
Employee engagement in our responsibility
programmes contributes to the development,
engagement and wellbeing of our staff
28,000hrs
given to the community by intu staff
58%
reduction in
carbon emissions
TCO2e since 2010
100%
waste diverted from
landfill (2016: 100%)
80
number of EV
charging points
Waste disposal at directly
managed centres
Water use at directly
managed centres
32
24
16
8
0
tonnes
2013
2014 2015 2016
2017
Waste recycled (tonnes)
Waste to landfill (tonnes)
Waste to energy (tonnes)
Waste to energy (tonnes)
100
450,000
410,000
370,000
330,000
290,000
250,000
90
80
70
60
%
1,500
1,200
900
600
300
0
m3
2013
2014 2015 2016
2017
m3/m
Absolute water consumption (m3)
Water intensity m3/million customers
Corporate responsibility
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Meeting our carbon targets
ahead of time
We have achieved our 2020 carbon targets
three years ahead of schedule, through a
groundbreaking programme to install LED
lightbulbs throughout our centres.
In 2012 we set ourselves the target of
reducing our carbon footprint by 50 per
cent, from our 2010 footprint. Lighting
accounts for up to 50 per cent of energy
use in retail spaces so this was identified as
the most significant aspect to tackle. We
installed over 60,000 energy-efficient bulbs
in several phases, achieving savings in one
phase before moving onto the next.
We also introduced a new energy
management system (ISO 50001)
and appointed energy champions
at each centre.
We will now set ambitious new energy-
saving targets and have begun to trial
onsite renewables at intu Chapelfield which
we plan to roll out to other centres.
60,000+
LED lightbulbs installed at our centres
144,000 TCO2e
tonnes of carbon saved
£25m
saved on our energy bills
Strategic review
As we near the end of our current set
of 2020 targets, we are now finalising
our 2030 strategy. We are using the
opportunity to think about how we take
forward our sustainability and make sure
it integrates with our strategic objectives.
As part of this analysis, and following the
review of our material issues last year, we
have considered how long-term future
trends, consumer trends and the key UN
Sustainable Development Goals (SDGs)
will affect our business and scope the big
issues intu needs to focus on to deliver
long-term value.
Green Gyms – celebrating a
10-year relationship
Green Gyms® are conservation projects
with a difference. There is strong
emphasis on health and fitness, meaning
volunteers improve both their health
and the environment.
This year we celebrated a decade of
partnership with The Conservation
Volunteers (TCV). Together, we have
worked with local authorities and
communities to set up 10 Green Gyms
near our centres.
Over our 10-year partnership we have
delivered real social and environmental
change. We have welcomed over 1,000
volunteers from the community, in
addition to the intu staff who have given
over 80,000 hours (3,000 days) to establish
and maintain them – making everyone
happier (attendees report a 21 per cent
increase in happiness). We have also seen
marked increases in biodiversity; kingfishers
have been observed returning to the
intu Merry Hill Green Gym.
This all leads to a £4 social return on every
£1 invested in Green Gyms.
Read more in our 2017 CR report
We have identified the SDGs where we
can make the biggest difference: decent
work and economic growth, sustainable
cities and communities and partnerships
for goals.
We know we can make the biggest
difference by creating economic
inclusion in our communities through
our employment and skills programmes,
futureproofing our assets using One
Planet Principles and using our
relationships to mobilise and encourage
participation from all stakeholders in
our communities.
We recognise we are not immune to
what is happening in the wider world
and understanding how the world is likely
to change over the next 10–30 years
means we can prepare ourselves to
take advantage of further growth
opportunities and mitigate risks
to our business.
We will combine our knowledge of what
works with our understanding of
sustainable future needs to create a 2030
strategy that builds on the successes we
have delivered through our 2020 strategy.
Materiality
Through our materiality process,
stakeholders identified the core issues
they consider most important for intu
in coming years.
Read more about our materiality
process online
External benchmarking
Providing clear and accurate performance
data for benchmarking against our peers
is critical for providing investors with
information on our long-term risk
assessment and management,
operational performance and added
value. It also provides us with valuable
information to help us respond to
emerging trends and review our
own practices.
Our performance in the Dow Jones
Sustainability Index, for example,
demonstrates we are leading in social
integration and regeneration, being in the
93rd percentile; and our performance in
the GRESB shows that we are leaders in
our environmental and social disclosures.
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intu properties plc Annual report 2017
Governance
Effectiveness and evaluation
As Chairman, it is my role to provide
leadership to ensure the operation of
an effective Board.
The Board consists of nine directors,
including myself. The directors bring a
wide range of skills and perspectives to
the Board’s deliberations, as described on
the following pages. In relation to gender
diversity we have three female Board
members (33 per cent), which meets the
Lord Davies’ 2020 target of 33 per cent.
As highlighted in the Nomination and
Review Committee’s report on page 76,
the Board considers that broader aspects
of diversity, rather than purely gender, are
key to stimulating constructive debate.
During 2017 we conducted an externally
facilitated Board performance evaluation
and the findings provided a further
opportunity to continue to enhance the
Board’s contributions through improved
communication and best practice.
John Strachan
Chairman
22 February 2018
Dear shareholder
Throughout the year we have continued
to ensure that our governance structures
at Board, Committee, subsidiary and joint
venture levels continue to be appropriate
and support our business and culture in
an ever-changing regulatory environment.
In the next few pages we provide details
of our Board members, the role of the
Board and its performance and oversight.
We also provide the information on our
governance framework which we
consider is appropriate for a UK
premium-listed company.
2017 governance highlights
Succession planning
It has been an exceptionally active
year for the Nomination and Review
Committee with significant changes to
the Board’s composition. Patrick Burgess
retired from the Board following the
annual general meeting (AGM) in May
2017 after nearly nine years as Chairman.
Andrew Huntley, Non-Executive Director
and Senior Independent Director (SID),
also retired from the Board in May 2017.
In accordance with the process
established by the Board, Andrew
Huntley chaired a Nomination and Review
sub-committee to oversee the search for
a new Chairman. The sub-committee
comprised Andrew Huntley, Adèle
Anderson and Steven Underwood. Korn
Ferry Whitehead Mann was engaged to
assist with the search. The independent
non-executive directors also contributed
to the process, all being entitled to attend
Nomination and Review Committee
meetings when Board succession matters
were being discussed.
Compliance with the April 2016
UK Corporate Governance Code
(‘the Code’)
The following governance pages
explain how the Company applies the
main principles of the Code, issued by
the Financial Reporting Council (FRC),
and how it meets other relevant
governance requirements including
provisions of the Disclosure Guidance
and Transparency Rules of the
Financial Conduct Authority. Both
documents are publicly available on
the FRC website (frc.org.uk).
The Board considers that the Company
complied in full with the provisions of
the Code during the year.
Governance
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It was fantastic to meet John
and David and talk with them
about the future of the centre.”
Kyra Massey
Customer Service Team Leader, intu Merry Hill
Board in action
Centre teams around the country played host to a series
of visits from the Chairman and Chief Executive as part
of the Chairman’s induction.
As part of the visits, which each lasted half a day, John Strachan
and David Fischel were given a centre tour by the general
manager. They then spent time meeting staff from all areas of
the centre team over a cup of tea and a bite to eat with centres
bringing a local twist such as eccles cakes at intu Trafford Centre.
They met and spoke to hundreds of staff from housekeeping
teams to security, customer services to business support and
technical services to car park hosts and gardeners. Topics were
varied as staff quizzed John and David on company plans and
policies, corporate responsibility, and their views on the
economy and Brexit as well as more personal questions such as
which sports teams they supported and their all-time favourite
films. But it wasn’t all one way – John and David found it
invaluable to learn more about the finer details of people’s jobs,
discuss any staff concerns and importantly to hear a host of new
ideas that the staff had about keeping intu at the forefront of
the retail and leisure market.
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intu properties plc Annual report 2017
Board of Directors
Chairman, Deputy Chairman and Executive Directors
Non-Executive Directors
John Strachan
Chairman
Age 67
John Whittaker
Deputy Chairman
Age 75
Appointed to the Board: 7 October 2015 and
as Chairman on 3 May 2017
Career: John was Global Head of Retail Services
and Chairman of the Retail Board at Cushman &
Wakefield until 2015. John’s career commenced
at Healey & Baker in 1972
Skills and experience: John brings a wealth of
experience from the retail property sector, an
international perspective and extensive
knowledge of the Spanish retail property market.
He is known for his creative and entrepreneurial
approach to developing new business
opportunities. He is a fellow of the Royal
Institution of Chartered Surveyors (RICS)
Other appointments: Advisory Board member
of True Private Equity; Vice-Chairman
European Board of the International Council
of Shopping Centres
Appointed to the Board: 28 January 2011
Career: John 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, MediacityUK and Liverpool2. 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
Adèle Anderson
Chairman of the Audit Committee
Senior Independent Director
Age 52
Appointed to the Board: 22 February 2013,
Audit Committee Chairman from 1 August 2013
and Senior Independent Director on 3 May 2017
Career: Adèle commenced her career at KPMG
where she became a partner and held senior
roles including Chief Financial Officer. She is
currently Audit Committee Chairman at easyJet
plc and Spire Healthcare Group plc and an Audit
Committee member at the Wellcome Trust
Skills and experience: Adèle graduated from
Kent University and is a qualified ACA. She has
gained extensive financial and significant Audit
Committee experience throughout her career
Other appointments: Audit Committee
Chairman at easyJet plc and Spire Healthcare
Group plc and Audit Committee member at the
Wellcome Trust
David Fischel
Chief Executive
Age 59
Appointed to the Board: Appointed Finance
Director in 1988, Managing Director in 1992
and Chief Executive in March 2001
Career: David qualified as a chartered
accountant in 1983 at Touche Ross & Co
before joining intu in 1985
Skills and experience: During his 32-year career
with intu, David has gained significant executive
experience in numerous aspects of the shopping
centre industry including shopping centre
acquisitions and developments
Other appointments: Non-Executive Director
of Prozone Intu Properties Limited
Matthew Roberts
Chief Financial Officer
Age 54
Appointed to the Board: 3 June 2010
Career: Matthew qualified as a chartered
accountant in 1989 and was previously the
Finance Director of Debenhams plc from 1996
to 2003, and Chief Financial Officer of
Gala (subsequently Gala Coral Group) from
2004 to 2008
Skills and experience: Matthew was part of the
team which acquired The Trafford Centre,
Manchester, in the UK’s largest ever single
property transaction. He led the establishment
of intu’s Secured Group Structure and further
transactions which have raised over £5 billion of
leverage. In January 2016 Matthew also assumed
responsibility for intu’s centre-based operations
Other appointments: Non-Executive Director
and Audit Committee Chairman of Marston’s PLC
Richard Gordon
Age 59
Appointed to the Board: 7 May 2010
Career: Richard 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. He 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
Skills and experience: In addition to
representing Gordon Family interests on the
Board, Richard also has significant real estate
experience having been involved with several
commercial and residential real estate
companies, mainly in South Africa
Board of Directors
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Rakhi Goss-Custard
Age 43
Appointed to the Board: 7 October 2015
Career: Rakhi’s early career included roles at
TomTom, content management provider
Article27 and 11 years at Amazon until 2014,
where she held a number of key roles including
responsibility for the Amazon UK Media category
Skills and experience: Rakhi has an up-to-date
perspective on retail and consumer trends,
as well as deep insight and knowledge of
the digital environment. Rakhi has a BA
in Marketing & Communications from
the University of Pennsylvania
Other appointments: Non-Executive Director of
Rightmove plc, Be Heard Group plc, Kingfisher
plc and Schroders plc
Lady Patten
Chairman of the Remuneration Committee
Age 64
Appointed to the Board: 22 September 2011
Career: Louise 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 Advisor
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 & Spencer
plc, GUS plc, Hilton Group plc, Harveys
Furnishings plc and Control Risks Group
Other appointments: Non-Executive Director
and Interim Chairman at Abcam plc and
Non-Executive Director of Arthur J. Gallagher
Holdings (UK) Limited and Arthur J. Gallagher
Insurance Brokers Limited
Andrew Strang
Age 65
Appointed to the Board: 8 July 2009
Career: Andrew started his career with Richard
Ellis 40 years ago. He served as Managing
Director of Threadneedle Property Investments
Limited for 17 years until January 2008 and
Chairman of Hermes Real Estate Investment
Management from 2009 to 2011. He was a
Director of the British Property Federation from
1994 to 2013. Andrew served as a Director of the
Pollen Estate Trustee Company Limited from
August 2014 to January 2016. He is a current
member of the Norges Bank Real Estate
Management 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
Structure of the Board and independence
Board structure
Gender split
1
Chairman
2
Executives
Non-Executives 6
Men
Women
Board independence (excluding Chairman)
Length of tenure of Directors
2
Executives
4
Non-Executives
Non Independents 2
0 – 3 years
3 – 6 years
6 – 9 years
9+ years
Board relevant sector experience
(percentage of Board)
Property
78%
Digital
11%
Retail
78%
Financial
33%
Governance
22%
6
3
2
2
4
1
Key to Committees
Audit Committee
Executive Committee
Remuneration Committee
Nomination and Review
Corporate Responsibility
Committee
Committee
Capital Projects Committee
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intu properties plc Annual report 2017
Executive Committee
Martin Breeden
Development Director
Joined the Group in 2002 and was
appointed Group Development
Director in January 2016. Martin has
direct responsibility for intu’s
development programme across the
UK and intu’s Spanish business. Martin
has over 25 years’ experience in the
retail property industry. He is a fellow
of the RICS and a member of the
advisory panel of Revo
Hugh Ford
General Counsel and Group
Treasurer
Joined the Group as General Counsel
in 2003. Appointed General Counsel
and Group Treasurer in April 2015.
Previously he was 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
Barbara Gibbes
Director of Finance
Joined the Group as Director of
Finance in January 2017 from
Domino’s Pizza Group Plc where she
was Group Financial Controller.
Previously she held other senior
finance roles and was a Director at
Deloitte. She qualified as a chartered
accountant in 2000
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 was Company Secretary of two
FTSE real estate sector companies
before joining intu
Gordon McKinnon
Operations Director
Joined the Group in January 2011 and
was appointed Operations Director in
November 2013. He spent 20 years in
various roles with Marks & Spencer
before taking up an assignment with
Manchester Millennium Limited, the
taskforce rebuilding Manchester city
centre following the 1996 IRA bomb.
He was appointed Director of
Operations at The Trafford Centre
in 2004
Trevor Pereira
Digital and Commercial Director
Joined the Group in 2007 as
Commercial Director. He was
subsequently appointed Group Digital
and Commercial Director, responsible
for digital activities, commercialisation,
marketing and customer experience.
He previously worked for airport group
BAA plc for 21 years, latterly as Retail
and Commercial Director for
Heathrow Airport
Dushyant Sangar
Corporate Development Director
Joined the Group in 2010 and
appointed Corporate Development
Director in 2014. He has been closely
involved in all of the Group’s major
acquisitions in the UK and Spain. He
previously worked for MGPA, a real
estate private equity investment
advisory business and for UBS. He is a
Non-Executive Director of Prozone
Intu Properties Limited
Julian Wilkinson
Asset Management Director
Joined the Group in 2011 and was
appointed Asset Management Director
in January 2016. Julian has
responsibility for optimising the
performance of intu’s shopping
centres. He has held similar positions
at director level over the last 25 years
on behalf of both retailers and
landlords and is a fellow of the RICS
Senior management team
Biographies of the senior management team are available on our website at:
intugroup.co.uk/en/about-us/our-people/
The Board
The role of the Board
and its committees
The Board
65
The
Board
Led by the Chairman, the Board takes primary responsibility for
defining the Group’s strategic objectives, risk appetite and control
environment; monitoring delivery of strategy by the Executive
Directors; and shaping the resourcing, culture and values by which
the wider business delivers targeted performance.
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Corporate Responsibility
Committee
Chairman
John Strachan
Members
Adèle Anderson, David Fischel,
Alexander Nicoll, Helen Drury,
Jennifer Sandars
Key responsibilities
Oversees the management of the
Group’s CR activities
Audit Committee
Chairman
Adèle Anderson
Members
Rakhi Goss-Custard,
Andrew Strang
Key responsibilities
Monitors the integrity of financial
statements, internal controls and
risk management process and
reviews the effectiveness of the
internal and external auditors
Remuneration Committee
Chairman
Louise Patten
Members
Adèle Anderson, Rakhi Goss-Custard
Key responsibilities
Sets remuneration policy for
the Executive Directors and the
Chairman and recommends and
monitors the level and structure
of remuneration for senior
management
Nomination and Review
Committee
Chairman
John Strachan
Members*
Adèle Anderson, Rakhi Goss-Custard,
Louise Patten, Andrew Strang,
Steven Underwood
Key responsibilities
Ensures the Board comprises people
with an appropriate balance of skills,
knowledge and experience
* all independent non-executive
directors are invited to attend when
discussing Board succession
See page 57 for more
information
See page 71 for more
information
See page 78 for more
information
See page 76 for more
information
Capital Projects Committee
Chairman
John Strachan
Members
Martin Breeden, Raymond Fine,
David Fischel, Matthew Roberts,
John Whittaker
Key responsibilities
Reviews new projects and
expenditure in detail and makes
recommendations to the Board
on certain projects, as appropriate.
Has no power to approve proposals
or authorise expenditure
The Capital Projects Committee
is not a formal Committee of
the Board
Executive Committee
Chairman
David Fischel
Members
Matthew Roberts, Martin Breeden,
Hugh Ford, Barbara Gibbes,
Susan Marsden, Gordon McKinnon,
Trevor Pereira, Dushyant Sangar,
Julian Wilkinson
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
The Executive Committee is not
a formal Committee of the Board
Key strategic matters discussed in 2017
Optimising asset performance
— review and approval of the
Group’s strategic plan
— approval of refinancings
and restructure of Secured
Group Structure
— acquisition of Madrid Xanadú
shopping centre and subsequent
joint venture creation with
TH Real Estate
— creation of 50/50 joint venture
for intu Chapelfield
Delivering UK
developments
— management and oversight
of the Group’s capital
investment programme
— considered recommendations
from Capital Projects
Committee
— development pipeline
of £1.9 billion
Other key matters discussed
— continuing monitoring of risk modelling and analysis, including
cybersecurity risk and the impact of the UK’s EU referendum vote
— repurchase of £139.6 million in aggregate principal amount of £300
million 2.5 per cent convertible bonds due 2018 issued by subsidiary
— succession-planning for the Board
— continued oversight of strategic and operational delivery
— recommended all-share offer by Hammerson
Making the brand count
— supported the development
of the Group’s digital strategy
— company-wide national
marketing events across
all centres
— regular Corporate
Responsibility Committee
meetings
Seizing the growth
opportunity in Spain
— the Group’s Spanish strategy
and discussion of potential
acquisitions and development
— monitoring performance
of Spanish assets
— development plans for
intu Costa del Sol
Areas of focus in 2018
— continuing monitoring of risk modelling and analysis
— monitoring and progression of corporate objectives for 2018
— continuing oversight of strategic and operational delivery, including
the Hammerson transaction
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intu properties plc Annual report 2017
The Board continued
— internal policies, procedures and
controls (including risk management
arrangements, delegated authority
limits and a related parties protocol)
which are regularly reported on,
reviewed and updated by the Board
and relevant committees
— internal processes which are
communicated to all staff and
are available at all times on the
Group’s intranet
Each aspect is routinely reviewed by the
Board and updated to satisfy the needs of
the business. The Board has continued to
review its governance framework and has
adjusted, where necessary, the roles,
structure and accountabilities of senior
management to reflect the demands of
the business. During the year, the Group’s
anti-bribery and corruption training and
controls were reviewed and enhanced,
including the launch of a dedicated
e-learning compliance platform and a
new online gifts and hospitality tool.
Furthermore, in response to the
introduction of the Criminal Finances
Act 2017, the Group undertook a risk
assessment of whether it has reasonable
procedures in place to prevent the
criminal facilitation of tax evasion with
further training and monitoring being
planned for implementation during 2018.
Leadership
The Board and its governance
framework
The Board is responsible for setting intu’s
strategic aims and then monitoring
management’s performance against
those aims as well as setting the strategic
framework within which those aims can
be achieved. The business model
described on pages 30 and 31 illustrates
the key value creation and operational
drivers for intu’s strategy and the means
by which the Board ultimately delivers
long-term growth and sustainable returns
for shareholders and debt investors.
Appropriate and effective corporate
governance is taken seriously at intu and
is intrinsic to all aspects of the Board’s
activities. Consequently, governance is
interwoven into the activities of
management, who are accountable to the
Board, and all employees, who are in turn
accountable to management. This is
reinforced by the established coherent
governance framework which underpins
the culture and workings of the Group
with clearly defined responsibilities and
accountabilities, consisting of:
— Board committees to enable the
Board to operate effectively and give
full consideration to key matters (as
shown in the diagram on page 65)
— delegated authority limits, which apply
at all levels of the business and are
incorporated into all operational
procedures ensuring matters are
dealt with at the appropriate level
Board culture
The Chairman is directly
accountable for the culture of
the Board, which is defined by:
— highly experienced and
knowledgeable directors, with a
wide range of skills and diverse
perspectives who act confidently
and are true to themselves
— a conservative, measured approach
to business, allied with a willingness
to take considered risks through
insightful investment to achieve
strategic goals
— the relationships between individual
directors and the senior executives,
which encourage beneficial debate
and open discussion of views
The Board’s culture permeates
throughout the Group’s operations
and is enshrined within intu’s values,
which encourage staff to be bold,
creative and genuine.
Further information on intu’s culture
and values can be found on page 54
Our approach to CR
CR underpins the strategic
aims of our business, creating a
long-term and sustainable business
that brings value to all our
stakeholders. The Board fully supports
the Group’s approach to CR with the
Chairman of the Board chairing the
Board CR Committee. The Board CR
Committee’s members also include
the Chief Executive and the Chairman
of the Audit Committee.
Further details of our CR activities
can be found in the 2017 CR report
The Board
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Roles and responsibilities
Role
Chairman
John Strachan
Chief Executive
David Fischel
Chief Financial Officer Matthew Roberts
Independent
Non-Executive
Directors*
Adèle Anderson
Rakhi Goss-Custard
Louise Patten
Andrew Strang
Senior Independent
Director
Adèle Anderson
Non-Independent
Non-Executive
Directors
Richard Gordon
John Whittaker
Alternate Directors
Steven Underwood
Raymond Fine
Responsibilities
Leading the Board, setting agendas, achieving clarity of decision-making, ensuring
effectiveness in all aspects of the Board’s remit, driving the culture of accountability
and openness and ensuring effective two-way communication with shareholders
and between non-executive directors and senior management
Delivery of Group strategy, primary accountability for day-to-day operational
management, implementation of policies and strategies developed by the Board,
modelling and setting the Company’s culture and developing the abilities and skills
of the Group’s personnel to their maximum potential
Managing the Group’s funding strategy, financing, reporting and investor
programme, encompassing leadership of the finance function. From January 2016
also responsible for intu’s centre-based operations
Bringing an external and independent view to the Board’s discussions, objectively
scrutinising the performance of management, providing rigorous and constructive
challenge to executive management when appropriate, ensuring financial controls
and risk management are robust, determining appropriate levels of remuneration
for management. Independent Non-Executive Directors are entitled to attend any
committee meeting if they wish, without the responsibility of full membership
Providing advice, additional support and experience to the Chairman as required.
Available to act as an intermediary for the other directors if necessary. Leads the
appraisal of the Chairman’s performance annually in conjunction with the
other non-executive directors and is available as an additional point of contact
to shareholders
intu has representatives of two major shareholders appointed as non-executive
directors – the Deputy Chairman John Whittaker and Richard Gordon. Direct
shareholder Board representation, with appropriate management of conflicts,
ensures that key strategic, operational and governance decision-making is more
closely aligned with the interests of the direct shareholder groups they represent
and other institutional and retail investors generally. In this respect the Group
surpasses the expectations of the Stewardship Code
The representative directors also contribute strongly to the Board’s culture and
personality, adding insight and constructive challenge from their varied commercial
backgrounds, their experience and expertise
In accordance with the Company’s Articles of Association, John Whittaker and
Richard Gordon have appointed Steven Underwood and Raymond Fine respectively
as their alternates. The Board has generally invited the alternates to attend
Board meetings
*
The Board reviews the independence of its non-executive directors on an annual basis. With the exception of John Whittaker and Richard Gordon, the Board has
concluded that all non-executive directors are independent.
Biographical details of each director are set out on pages 62 and 63
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The Board continued
Effectiveness
Balance and composition
The Nomination and Review Committee
regularly reviews the composition of the
Board to ensure that it operates efficiently
and has access to a broad range of
knowledge and viewpoints. The Board
determined that new candidates for the
role of non-executive director should have
sector-relevant qualifications and
experience – notably in property, retail,
finance or digital, to ensure that these key
areas are well-represented – while also
having regard to wider business
knowledge and diverse backgrounds
which can be beneficial to the Group.
The appropriate balance of skills,
independence, experience and knowledge
does not in itself ensure the efficient
operation of a board. To this end, the
Chairman’s style and leadership of the
Board are essential to 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 facilitates this by drawing
on the Non-Executive Directors’ range of
experiences to provide insight and
alternative perspectives and has invited
all independent Non-Executive Directors
to attend any committee, irrespective of
whether they are formally a member of
such committee.
Board meetings
Board agendas are shaped to create time for strategic discussion and debate with time
allocated to routine matters being closely managed.
Board attendance table 20171
John Strachan
Patrick Burgess4
John Whittaker
David Fischel
Matthew Roberts
Andrew Huntley4
Adèle Anderson
Richard Gordon
Rakhi Goss-Custard
Louise Patten
Andrew Strang
Board
4/43
2/23
4/4
4/4
4/4
2/2
4/4
4/4
4/4
4/4
4/4
Audit
2/25
–
–
4/43
4/4
–
4/43
–
4/4
–
4/4
Nomination
& Review
1/23
–
–2
2/25
–
–
2/2
–
2/2
2/2
2/2
Remuneration
3/35
1/1
–
4/45
–
1/1
4/4
–
2/2
4/43
–
1
2
Scheduled meetings only, excludes Board away day, Spanish centre visit, Board and Committee update
conference calls and ad hoc meetings.
Steven Underwood, Alternate Director to John Whittaker, was appointed to the Nomination and Review
Committee on 3 May 2017.
3 Board or Committee chairman.
4
Patrick Burgess and Andrew Huntley stepped down from the Board following the 3 May 2017 annual general
meeting.
5 Attends meetings in a non-voting capacity.
At each scheduled Board meeting, the Executive Directors provide updates on their key areas
of responsibility. In addition, the Chairmen of the Audit, Remuneration and Nomination and
Review Committees give updates on the workings of and progress made by 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 additionally convened Board meetings, as required.
The balance of the Board is illustrated on
page 63.
review. Each director has demonstrated
that he or she has sufficient time to
devote to their present role at intu.
Time commitment
and external activities
Non-executive directors are appointed
for a three-year term and their continuing
service thereafter is subject to review by
the Board. All directors are submitted for
annual re-election by shareholders. Their
annual time commitment varies with
specified minimum requirements within
the terms of their appointment and is
assessed as part of each director’s annual
Conflicts of interest
The Board has adopted a formal
procedure under which directors must
notify the Chairman of the Board 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 themselves
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.
The Board
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Relations with
shareholders
We place considerable emphasis on
maintaining an open and frank dialogue
with investors. Our programme of investor
relations activities involves members of
the Executive Committee (including, on
occasion, the Chairman) and the Head of
Investor Relations. We seek to develop
existing and potential investors’
understanding of intu’s business strategy,
operations, performance and investment
case. This provides the Board and Executive
Committee with an insight into the differing
views of intu’s institutional and other
significant investors as well as those of
retail shareholders.
Key activities in 2017 included:
— results meetings and update calls: an
average of 50 institutions attended each
announcement
— road show meetings: following results
announcements we conducted around
200 meetings in the UK, South Africa,
US and Europe
— investor conferences: we attended
nine real estate conferences organised
by investment banks, meeting
110 institutions
— site visits: toured Madrid Xanadú and
intu Lakeside with 30 investors and 15
sell-side analysts
— interaction with sell-side analysts:
engaged with analysts from around 20
institutions to ensure the insight of their
research was accurate
390investor interactions in 2017
Communication
Directors are kept fully informed of
progress on key matters, including
operational and financial performance,
between formal meetings. This is
achieved by way of either scheduled
conference calls or less formal update
meetings in months where there is
no formal Board meeting scheduled.
Ad hoc meetings and working visits to
centres are also regularly arranged to
support the Chairman’s policy of open
communication. The Chairmen of the
Audit Committee and Remuneration
Committee communicate regularly and
directly with relevant staff and external
advisors, including but not limited to the
Director of Risk and Assurance, the
Company Secretary and Deloitte LLP,
who act as the Remuneration
Committee’s consultants.
The Chairman of the Board and Company
Secretary ensure that all directors are
provided with accurate and timely
information to facilitate informed
discussion at Board meetings.
Board oversight of
risk management
The effective assessment and
management of risk is key to the
delivery of the Group’s strategy. The
setting of the Group’s risk appetite by
the Board provides the framework
within which the Group’s risk
management process operates.
The Board has overall responsibility
for risk management and the Audit
Committee monitors and reviews the
effectiveness of the risk management
process ensuring that the appropriate
governance and challenge around risk
is embedded throughout the business.
The Group’s risk management process is
set out in more detail on pages 38 and
39, and the Group’s principal risks are
discussed on pages 40 and 41. As part
of the Governance Framework all
recommendations to the Board must
include specific consideration of
potential risks to ensure this aspect
is given due consideration while still
permitting the Board to act decisively.
Many of the risks to which the Group is
exposed have remained broadly in line
with 2016 with the exception of
cybersecurity, which saw an increase
in likelihood but the severity of its
potential impact has reduced. No
significant new risks were identified.
Principal risks and uncertainties are discussed
in further detail on pages 40 and 41
Appropriate and
effective corporate
governance is taken
seriously at intu and is
intrinsic to all aspects of
the Board’s activities.”
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intu properties plc Annual report 2017
Viability statement
Principal risks are set out in detail on
pages 40 and 41, and the relevant risks for
assessing viability have been identified as:
— macro-economic; specifically impact
on rental income levels, property
values and covenant headroom (Risk 1)
— retail environment; specifically impact
on occupancy and pipeline (Risk 2)
— terrorism; specifically negative impact
on lettings and rental growth (Risk 5)
— availability of funds; specifically impact
on liquidity (Risk 6)
The Directors also consider the impact on
the Group’s financial position of changes
in key input assumptions including asset
values, income and refinancing after
mitigation strategies including property
sales not included in the plan. Key
assumptions and sensitivities
addressed include:
— ability to recycle capital as planned
— refinancing of debt; £2.1 billion (around
42 per cent) of the Group’s debt is due
for repayment in the next five years
— falls in the value of investment
property of up to 25 per cent
— falls in income of up to 10 per cent
In accordance with provision C.2.2 of
the UK Corporate Governance Code, the
Directors have assessed the prospects of
the Company over a longer period than
that required in adopting the going
concern basis of accounting. Based on
the result of this analysis, the Directors
have a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as they
fall due over the next five calendar years.
This period is considered appropriate
because of the combination of the
following factors:
— the Group’s strategic plan covers
10 years, with a greater degree of
detail and rigour applied to the first
five years
— the Group’s weighted average
unexpired lease term, which at
31 December 2017 was 7.5 years
— the Group’s weighted average debt
maturity, which at 31 December 2017
was 6.6 years
— the term of the Group’s Revolving
Credit Facility, which currently extends
to 2021
The strategic plan incorporates the
Group’s strategic objectives and considers
the impact of the principal risks. The plan
considers net rental income, cash flows,
development expenditure, potential
corporate transactions including the
recycling of capital and refinancing plans
over the 10-year period. It highlights the
impact of the relevant principal risks on
key metrics such as debt to assets
ratio, underlying earnings per share
and financial headroom and also
models the impact of potential
corporate transactions.
Audit Committee
Audit Committee
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Areas of focus in 2017
— developments
— international operations
— culture
— completion of audit tender process
Members in 2017
Chairman
Adèle Anderson
(Independent Non-Executive Director)
Members
Rakhi Goss-Custard
(Independent Non-Executive Director)
Andrew Strang
(Independent Non-Executive Director)
For members’ other Board appointments,
skills and experience see Board of Directors
on pages 62 and 63
Areas of focus in 2018
— financial information and risk
management in relation to potential
business combination
— developments
— property valuations
— procurement
— cybersecurity
— culture
Dear shareholder
As the Chairman of the Audit Committee
it is my role to present to you the Audit
Committee report for 2017.
The Audit Committee has this year
continued to focus on risk management,
specifically in relation to our
developments in the UK and our
expanding operations in Spain, as well as
continued to receive twice-yearly reviews
of cyber risks. The Audit Committee also
conducted a review of the Group’s culture
and concluded the audit tender process.
The Group’s approach to risk management
is described in detail on pages 38 and 39
and the principal risks are detailed on
pages 40 and 41.
The EU Audit Regulation (537/2014) and
Audit Directive (2014/56/EU) became
applicable from 17 June 2016 and must
be implemented in the UK from that
date. These limit the length of tenure
an audit firm can serve, and put in place
requirements for the audit tender process
as detailed below.
PricewaterhouseCoopers (PwC) has been
intu’s audit firm for more than 20 years
and a tender process was commenced in
2016 and concluded in 2017. Since the
conclusion of this process the proposed
combination with Hammerson has been
announced, and consequently it has been
decided to defer the appointment of a
new auditor until the outcome of this
approach is clear. Under the applicable
transitional rules PwC is able to act as
intu’s auditor until 2020.
Following our annual review of auditor
quality and independence (see page 73
for more detail), we have recommended
that PwC be reappointed for the
2018 audit.
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 and approach
to 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 2017:
— valuation of the Group’s investment
and development property, including
the first external valuation of the land
at intu Costa del Sol
— the Group’s culture
— the Group’s cybersecurity plans
— accounting treatment of the most
significant transactions including the
acquisition and subsequent disposal
of a 50 per cent interest in Madrid
Xanadú, the 50 per cent disposal
of intu Chapelfield, completed
31 January 2018, and the future
equity interest of Eurofund in the
intu Costa del Sol development
— the 2017 internal audit plan
and audit charter
— the viability statement
— compliance with the Criminal Finances
Act, including the Group’s approach
to prevention of the facilitation
of tax evasion
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intu properties plc Annual report 2017
Audit Committee continued
Key financial reporting and
significant judgements
During the year the Audit Committee
discussed the planning, progress and final
conclusions of the external audit process.
The audit plan was reviewed and
approved at the July 2017 Audit
Committee meeting. The significant risk
areas identified were: investment and
development property valuations;
significant transactions during the year;
revenue recognition; and management
override of controls. International
Standards on Auditing (UK) identify
these latter two risks as significant
for all companies.
These issues were discussed by the
Audit Committee following finalisation
of the audit.
The Audit Committee takes into account
the views of the external auditor in
understanding and assessing whether
suitable accounting policies have been
adopted, whether management has
made appropriate estimates and
judgements and whether disclosures
are balanced and fair. The main issues
discussed by the Audit Committee in
the year are detailed in the table below.
Issue
Action taken
Valuation of investment
and development property
For the interim results at 30 June 2017 the Audit Committee carried out a review of the investment property
valuations. The full Board carried out a review of the 31 December 2017 valuations included in this report.
Due to the overall importance of the valuations to the Group’s results, the relevant Audit Committee meeting
included a presentation from and discussion with Knight Frank as part of the valuation process and the relevant
Board meeting included a presentation from Cushman & Wakefield.
The Audit Committee review included discussion with management and the external 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. The Audit Committee
specifically considered the appropriateness of the special assumption that the development land at intu Costa del
Sol is valued as if all planning consents are in place at the balance sheet date, and the sensitivity of this valuation to
projected income and cost assumptions.
Presentation of information Operating through joint ventures is a core part of intu’s strategy. Management both review and monitor the
Going concern
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 between the management and statutory bases are
provided in the other information section on pages 165 to 168.
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.
The Company’s ‘going concern’ review, which is based on 18-month cash flow projections with particular focus on
the next 12 months, was discussed with management. The projections cover the major trading cash flows, being
rental income and 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 the value of the Group’s properties, a fall in
income as well as the inability to execute the capital recycling transactions, 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
and analysis also considered what actions were available to the Group to mitigate the impact of such reductions on
the cash flow projections.
Viability statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Board has assessed the prospects
of the Company over a longer period than that required in adopting the going concern basis of accounting. The
viability statement is included on page 70 and sets out the conclusion of that assessment.
The same stress tests as outlined in the Going concern section above were conducted on the projections
underpinning the viability assessment.
The Audit Committee assessed the viability position and reported its recommendations to the Board.
Fair, balanced and understandable
At the request of the Board, the Audit
Committee considered whether the
2017 annual report was fair, balanced
and understandable and whether it
provided the necessary information for
shareholders to assess intu’s performance,
business model, position and strategy.
As part of its considerations the Audit
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 Audit
Committee is satisfied that, taken as
a whole, the annual report is fair,
balanced and understandable and has
recommended it as such to the Board.
Audit Committee
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External auditor
The Audit Committee has assessed the
effectiveness of the external auditor,
PwC, in line with the approach set out in
the Financial Reporting Council’s Audit
Quality Practice Aid. In carrying out the
evaluation the Audit Committee has held
discussions without the auditor, asked the
auditor to explain the risks to audit quality
that they have identified and their
firm-wide controls relied upon, enquired
about the findings from internal and
external inspections of their audit,
challenged the auditor’s strategy and
plan and discussed the outputs of the
audit with the auditor. This included direct
meetings, review of reporting issued by
the external auditor and review of
independent reports:
— senior finance staff reviewed the
detailed execution of the 2016 audit
plan with the engagement team and
incorporated any findings into the
2017 plan
— the Chair of the Audit Committee and
the Chief Financial Officer each met
privately with a senior partner of PwC
unrelated to the engagement to
review the performance of the firm
— the Audit Committee reviewed the
audit plan provided by PwC, including
the risks identified and its approach
to these
The Company has complied with the
provisions of The Statutory Audit Services
for Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014 and in doing
so has applied the transitional provisions
related to the audit tender process.
The tender process commenced during
2016 and concluded during the first half
of 2017 with Deloitte being selected for
appointment for the year ending
31 December 2018. The tender process
was conducted in line with the
requirements of EU Audit Regulation
(537/2014) and Audit Directive (2014/56/
EU) (‘the regulations’) which became
applicable to the Group on 1 January
2017. Since the conclusion of this process
intu has become the offeree in a takeover
approach, and consequently it has been
decided to defer the appointment of a
new auditor until the outcome of this
approach is clear. Under the applicable
transitional rules PwC is able to act as
intu’s auditor until 2020.
A resolution to reappoint PwC for the
2018 audit will be proposed at the 2018
annual general meeting. The Audit
Committee will continue to review the
effectiveness and independence of the
external auditor each year.
Non-audit services
On 1 January 2017 the Group
implemented the FRC’s Ethical Standard
for Auditors which imposes restrictions on
certain non-audit services. A number of
non-audit services are prohibited and
others require approval by the Audit
Committee. There is an overall fee limit of
70 per cent of the average of audit fees
charged in the past three years, and
hence the fee limit comes into force for
the financial year to 31 December 2020.
The Audit Committee has sole authority
to contract for non-audit services with the
external auditor subject to observing
certain guidelines including:
— the Audit Committee must consider
whether the proposed arrangements
will maintain audit independence
— the external auditor must
satisfy the Company that it
is acting independently
The table below summarises the fees paid
to the auditor over the last three years.
The three-year average ratio of non-audit
fees to audit fees is 8 per cent.
Audit fees
Non-audit fees
Total fees paid to auditor
Ratio of non-audit fees to audit fees
2017
£000
789
49
838
6%
2016
£000
705
48
753
7%
2015
£000
628
96
724
15%
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intu properties plc Annual report 2017
Audit Committee continued
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 Group’s approach to risk
management is described in detail on
pages 38 and 39 and the principal risks
are detailed on pages 40 and 41.
The Audit Committee oversees the
Board’s annual review of the effectiveness
of the risk management and internal
control systems. During this review the
Board has not identified nor been made
aware of any failing or weakness which
it has determined to be significant.
The key elements taken into account
in this review include:
— the Group’s internal audit function’s
work during the year (see right)
— the Group’s risk management process
— the Group’s controls over its financial
reporting process including: the
comprehensive system for reporting
results to the Board for review and
consideration; the review process
underlying the production of the
consolidated financial statements;
and the experience and quality of
the team involved in the financial
reporting processes
In the context of the Group’s approach to
risk management the Audit Committee
commissioned a report on company
culture. This consisted of consideration
of key trends from the employee survey
conducted in the second half of 2016,
and a Group-wide review of culture,
including workshops and questionnaires
with staff across all levels at head office
and at the centres. The results from this
review helped the Audit Committee
contextualise risks and risk management
practices. The actions arising have been
put on hold until after the completion
of the potential business combination
with Hammerson.
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
and its subsidiaries and joint ventures.
The risk and internal audit function has a
rolling programme of reviews ensuring
that all centres, functions and areas of
the business are reviewed regularly. The
most significant areas covered in 2017
included shopping centre health checks,
business continuity, insurance,
procurement and supply chain and
culture. Additionally, annual assurance
activities were performed, including a
review of the assurance map and
executive expenses.
Committee membership
The Audit Committee members have been
selected to provide the wide range of
financial and commercial expertise
necessary to fulfil the Committee’s duties
and responsibilities. The Board is satisfied
that the Audit Committee has recent
and relevant financial experience for the
purposes of the UK Corporate Governance
Code. Additionally, in accordance with the
2016 Corporate Governance Code the
Board has determined that the current
composition of the Audit Committee as a
whole has competence relevant to the
sector in which the Company operates. For
full detail of the members’ experience and
skills please see Directors’ biographies on
pages 62 and 63.
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There were 10 whistleblowing incidents
relating to the intu Group during 2017.
These included:
— reported breach of health and safety
procedures, following investigation of
which one individual was dismissed and
the other subject to disciplinary action
— reported security concerns within one
centre, following which a thorough
review took place and remedial action
was taken
— two connected claims of professional
misconduct, which resulted in
disciplinary action
— one claim of professional misconduct
which is still being investigated
— concern over the roadworthiness of a
centre vehicle, which was proved to be
without foundation
— two grievances which were deemed
not to be whistleblowing incidents
— two further disclosures which,
upon investigation, could not
be substantiated
Audit Committee effectiveness
As part of the Board evaluation process,
the Audit Committee reviewed its own
effectiveness and this confirmed that
the Committee remained effective at
meeting its objectives.
Adèle Anderson
Chairman of the Audit Committee
22 February 2018
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. An external review of the
Group’s risk management process was
carried out at the end of 2015 as
discussed in the focus on risk section
on pages 38 and 39. The key
recommendations have all
been implemented.
Whistleblowing policy
The Audit Committee is responsible for
overseeing the Group’s whistleblowing
policy and procedures, under which
employees can raise concerns about
possible improprieties (whether financial
or otherwise) within the Group on a
confidential basis.
During the year the Audit Committee
reviewed and strengthened the policy
and procedures and a whistleblowing
committee was established with
set terms of reference, with key
representatives from HR, Operations
and Finance, which reports regularly to
the Audit Committee. All whistleblowing
incidents are reported to this
whistleblowing committee which fully
investigates each event and agrees any
remedial action such as procedures
being reviewed and improved
where appropriate.
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intu properties plc Annual report 2017
Nomination and Review Committee
Highlights of 2017
— Chairman succession-planning
— Externally facilitated Board evaluation
Members in 2017
Chairman
Patrick Burgess (until 3 May 2017)
(Chairman of the Board)
John Strachan (from 3 May 2017)
(Chairman of the Board)
Members
Andrew Huntley (until 3 May 2017)
(Independent Non-Executive Director)
Adèle Anderson (from 3 May 2017)
(Independent Non-Executive Director)
Rakhi Goss-Custard (from 3 May 2017)
(Independent Non-Executive Director)
Andrew Strang (from 3 May 2017)
(Independent Non-Executive Director)
Louise Patten
(Independent Non-Executive Director)
Steven Underwood (from 3 May 2017)
(Alternate Director for John Whittaker)
Areas of focus in 2018
— continue refreshing of Board
composition in line with
succession plans
— continuation of process to ensure
smooth succession of the Chairman
Dear shareholder
2017 continued to be an important
and busy year for the Nomination
and Review Committee.
Having taken over the role of the
Chairman in early May, I am committed
to maintaining the high standards of the
Nomination and Review Committee and
ensuring that we continue to follow a
robust process and best governance
practice whenever key decisions are
taken, in particular relating to new
appointments and when considering the
composition of the Board.
Responsibilities and how they were
discharged in 2017
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 on
appointments to the Board, including the
induction programme for newly
appointed directors, and on succession
planning. Those non-executive directors
who have served on the Board for six
years or more have been subject to a
particularly rigorous review.
The Committee carried out a formal
Board performance evaluation process,
by way of a questionnaire. The outcome
of the review is summarised opposite.
The Committee met twice in 2017 with its
main focus on the composition of the
Board and succession-planning, in
particular in relation to the succession of
the Chairman, and in relation to the role
of Senior Independent Director.
Statement on diversity policy
The Nomination and Review Committee,
and the Board, have always recognised
the importance of boardroom diversity,
providing a wide range of perspectives,
and the Committee’s policy is to seek to
ensure that a range of suitable candidates
is taken into account when drawing up
longlists and shortlists. The priority of the
Committee is to ensure that the Group
continues to have the most effective
Board possible and all appointments to
the Board are made on merit against
objective criteria. A description of intu’s
company-wide approach to diversity can
be found on pages 54 to 56.
Board composition
The Committee’s discussions regarding
the composition of the Board continue to
be framed by the Company’s previously
stated goal of reducing the overall size of
the Board. Accordingly, two non-
executive directors, Patrick Burgess and
Andrew Huntley, retired from the Board
and were not replaced. The Committee
is satisfied that the balance of skills,
knowledge and experience on the
Board and its committees continues
to be appropriate.
The Board is supportive of Lord Davies’
aspirational target of 33 per cent female
Board representation by 2020 and is
pleased to confirm that the Board’s
female representation now stands at
33 per cent. Further information
regarding our diversity policy is set
out above.
Succession-planning
A sub-committee was established,
chaired by Andrew Huntley, to carry out
the search for a new Chairman to succeed
Patrick Burgess who retired from the
Board in May 2017. Appropriate input was
provided by independent executive search
firm Korn Ferry Whitehead Mann. Korn
Ferry Whitehead Mann had no other
connection with the Company other than
providing input into the Board’s
succession-planning. I was pleased to
Nomination and Review Committee
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Performance evaluation
Every year, the Board conducts a performance evaluation of the performance of the Board
and its committees. In addition, the Chairman reviews the performance of each director and
the Senior Independent Director oversees the review of the Chairman’s performance. The
areas identified for attention during 2017 were as shown in the table below:
Areas identified for attention
Action taken
Board succession-planning As outlined on page 60 the Committee oversaw the process
Nomination and
Review Committee
Board Committees
for the succession of the Chairman and the Senior
Independent Director
Board succession remains a standard agenda item
Board Committees’ terms of reference are reviewed annually
and all independent non-executive directors continue to have
a standing invitation to attend any committee meeting if they
so wish, irrespective of their formal membership
2017 performance evaluation
This involved an external independent facilitator, Lintstock, engaging with the Chairman and
Company Secretary to set the context for the evaluation and tailor surveys for all directors to
the specific circumstances of intu. Lintstock is a specialist corporate governance consultancy
and has no commercial dealings with the Group, other than for the provision of corporate
governance services to the Board. The anonymity of all respondents was ensured throughout
the process in order to promote the open and frank exchange of views.
As a result of the analysis, among other things the Board agreed that it should continue to
devote attention to succession-planning, consider the balance between presentation and
discussion at meetings and continue to spend more time discussing strategic topics.
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. The programme ordinarily includes meetings with Board members,
senior management and external advisors, as well as a high-level review of all current
projects, Board strategy and an in-depth review of the Group’s assets. Additional elements
are added to the programme as needed following discussion between the Chairman and the
individual director.
Where required, the Company Secretary provides guidance and facilitates the provision of
training on directors’ duties under the Companies Act 2006 and on legal, regulatory and
governance matters with which the Company, Board and individual directors must comply.
accept the appointment as Chairman
of the Board with effect from 3 May 2017.
Andrew Huntley also retired from the
Board on 3 May 2017. The Committee
was pleased to appoint Adèle Anderson
as Senior Independent Director,
succeeding Andrew Huntley.
Talent, training and development
Talent development is a key focus of the
Committee and a comprehensive talent
and leadership programme, including
succession-planning, has been
implemented for senior management
across the Group. The Committee
receives regular update reports regarding
progress and remains confident in the
future potential of the Group’s most
promising executives and staff.
As Chairman, with the assistance of the
Nomination and Review Committee,
I regularly consider 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,
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.
Re-election of directors
All directors will submit themselves for
re-election at the forthcoming annual
general meeting in May 2018.
John Strachan
Chairman
22 February 2018
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intu properties plc Annual report 2017
Directors’ remuneration report
Dear shareholder
I am pleased to present intu’s 2017
Directors’ remuneration report to you,
which has been prepared by the
Remuneration Committee and approved
by the Board.
Results and context of remuneration
This has been another year of good
results, against a backdrop of headwinds
to the retail property market, including
the impact of Brexit and the internet.
Operationally, we out-performed
against our benchmarks and made
strong progress against our strategic
objectives. In particular in 2017 we
increased like-for-like net rental income
and achieved good growth across our
Spanish assets.
Remuneration policy
Our Directors’ remuneration policy was
approved by shareholders at the 2017
annual general meeting, and we were
delighted to receive 99.5 per cent support
from our shareholders.
A summary of the remuneration policy is
presented at the end of this 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:
— out-performance of total shareholder
return (TSR) against our peers
— delivering absolute total return (NAV
per share growth plus dividends) for
our shareholders
— annual EPS performance
— achievement of our strategic initiatives
that will build value for the longer term
Both Executive Directors are required to
build up a shareholding in intu shares
worth 200 per cent of salary.
Key areas of focus and decisions in
2017 and for 2018
The Remuneration Committee made
a number of decisions regarding the
application of our policy in 2017
and for 2018. Key decisions included
the following:
— the Chief Executive’s and Chief
Financial Officer’s salaries will be
increased by two per cent to £617,916
and £487,713, respectively. This
increase is lower than the average
increase for other staff in the business
— fees for our Chairman will remain
unchanged at £275,000 per annum
— the annual bonus awarded to the
Executive Directors for the year ended
31 December 2017 was 72 per cent
of salary representing 60 per cent of
maximum opportunity, based
on EPS performance in the year
and the achievement of key
strategic objectives
— the final tranche of the 2013 PSP
award, the second tranche of the
2014 PSP award and the first tranche
of 2015 PSP award are due to vest at
19, 36 and 13 per cent, respectively,
reflecting intu’s absolute total return
(NAV per share growth plus dividends)
performance over a three, four and
five year period
— for 2018, no changes have been made
to the performance measurement
framework for the annual bonus and
performance share plan
— PSP 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 TSR
and absolute total return performance
conditions, over three, four and
five years and would be subject to
performance and time pro-rating on
the successful acquisition of intu
by Hammerson
In light of the recommended all-share
offer by Hammerson to acquire intu, the
Remuneration Committee also
considered the remuneration implications
arising from the acquisition, including the
Members and meetings in 2017
Remuneration
Committee
(6 meetings)
A
B
6
6
6
6
Louise Patten (Chairman)
(Independent Non-Executive
Director)
Adèle Anderson (Independent
Non-Executive Director)
Rakhi Goss-Custard (appointed
3 May 2017) (Independent
Non-Executive Director)
Andrew Huntley (retired 3 May
2017) (Independent Non-
Executive Director)
A= Maximum number of meetings eligible to attend
B= Number of meetings actually attended
1
5
1
4
The Committee normally invites the Chairman
of the Board, the Chief Executive, the Company
Secretary and the HR director to attend the
scheduled meetings. The Chairman of the Board,
the Chief Executive, the Company Secretary and HR
director attended the four scheduled meetings held
in 2017. A further two unscheduled meetings were
also held. No individual was present when his or her
remuneration was being determined.
Remuneration governance
aligned features
Malus provisions for both the annual
bonus and PSP
Clawback provisions for both the
annual bonus and PSP
Performance period extending to
five years for a proportion of PSP
Full retrospective disclosure of annual
bonus financial targets including
minimum and maximum target range
Shareholding requirement of 200 per
cent of salary
Directors’ remuneration report
Directors’ remuneration report
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treatment of outstanding awards granted
under the intu share plans to Executive
Directors. Details of the impact on
Executive Director remuneration are set
out on page 85. The agreed approach
includes performance and time pro-rating
for PSP awards.
Our employees
The Committee oversees any significant
changes to the remuneration policy for all
intu employees. intu also operates a
number of share plans so that all of our
employees may have the opportunity to
share in intu’s success:
— In 2016, we introduced the intu Retail
Services Sharesave Plan, which is
another HMRC plan, and provides
employees with the opportunity
to purchase shares at a discount
following an initial savings period.
We continue to consider ways in which all
intu employees are aligned with the
success of the company.
Shareholder annual general meeting
The annual remuneration report will be
put to an advisory shareholder vote at our
2018 AGM and we look forward to
receiving your views and support.
— For a number of years now we have
operated an HMRC share incentive
plan (SIP), under which employees
may participate in a ‘partnership’
share plan
Louise Patten
Chairman of the
Remuneration Committee
22 February 2018
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.
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 §.
Overview of Executive Director remuneration
An overview of the key remuneration elements in place for Executive Directors in 2018 is set out below.
Key elements
Timing of payout
Summary of policy for 2018
2018
2019
2020
2021
2022
Salary
Pension
and benefits
Annual bonus
Long-term
incentives
Shareholding
requirement
— Salaries for 2018 are:
– David Fischel, Chief Executive: £617,916
– Matthew Roberts, Chief Financial Officer: £487,713
— Executive Director increases were below average increases to staff across the business
— The Company operates a defined contribution pension or salary supplement, where the contribution is
24 per cent of salary. The Chief Executive receives an additional 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
sickness insurance
— Maximum opportunity of 120 per cent of salary
— 50 per cent of the award earned will be deferred into intu shares, which vest over two and three years
subject to continued employment
— For 2018, performance is based two-thirds on EPS and one-third on strategic and operational objectives.
This is the same framework which applied for 2017
— Normal maximum grant size of 250 per cent of salary in 2018
— Three, four and five year performance periods
— For 2018, the awards will be based 50 per cent on TSR relative to the top five UK listed REITs, and 50 per
cent based on absolute total return (NAV per share growth plus dividends). Targets unchanged from 2017
— Executive Directors must build up a holding with a value equivalent to 200 per cent of salary
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intu properties plc Annual report 2017
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 how the
Remuneration 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 2018 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 Board 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 on our key performance indicators. Our aim is to focus management on delivering sustainable long-term performance
and support the retention of critical talent.
Total remuneration in 2017 §
The table below sets out the total remuneration received by each Director for the year to 31 December 2017.
Salary or fees
£000
Benefits
£000
Annual bonus
(cash and
deferred shares)
£000
Long-term
incentive
£000
Pension
£000
Total
remuneration
£000
Director
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Executive
David Fischel
Matthew Roberts
Chairman
Patrick Burgess (retired 3 May 2017)
John Strachan (appointed Chairman 3 May 2017)
Independent Non–Executive
Adèle Anderson
Andrew Huntley (retired 3 May 2017)
Louise Patten
Andrew Strang
Rakhi Goss–Custard
Other Non–Executive
Richard Gordon
John Whittaker1
Total
601
474
141
203
92
29
79
67
71
582
459
410
64
82
84
79
64
64
59
–
59
–
1,816 1,947
23
22
21
19
436
344
671
535
253
196
366
282
180
114
174 1,493 1,814
110 1,150 1,405
3
1
–
–
–
–
–
–
–
49
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
144
204
418
64
92
29
79
67
71
82
84
79
64
64
–
–
48
–
–
–
–
780 1,206
–
–
449
–
–
648
–
–
294
–
–
59
–
284 3,388
59
–
4,133
1.
John Whittaker did not receive any remuneration in 2017 or 2016 in connection with his position as Deputy Chairman and Non-Executive Director of the Company.
A management fee of £213,310 was paid to Peel Management Limited for the provision by Peel of management and advisory services, as further described on page 155.
The figures in the table 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, company car cash
allowance and occasional use of company flat and for 2017, compensation for a change in life assurance benefit. The value of the company car cash allowance is £18,000.
The 2016 figure for David Fischel has been restated by an amount of £2,000 to reflect a change in HMRC’s valuation of certain benefits.
— Pension: the value of the Company’s contribution during the year (30 per cent salary supplement in lieu of contributions for the Chief Executive and 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 2017 and 2016 respectively.
— Performance share plan: awards shown under 2017 comprise awards made in 2013, 2014 and 2015, which have one third subject to three-, four- and five-year performance
periods. The amount shown is the amount due to vest in respect of the first tranche of the 2015 award, with a three-year performance period to 31 December 2017; the
second tranche of the 2014 award, with a four-year performance period to 31 December 2017; and the final tranche of the 2013 award, with a five-year performance period to
2017. Amounts are calculated using a three-month average share price of £2.219. Further information regarding the vesting can be found on page 83. Performance share
plan awards shown under 2016 comprise the first tranche of awards made in 2014, and the second tranche of awards made in 2013. In line with the regulatory requirements,
these amounts have been restated from the figures disclosed last year to reflect the actual vesting and share price on the date of vesting in May 2017. For 2016, the amounts
also include the value of dividends accrued during the performance period on the awards vesting, which amounted to £33,470.
Directors’ remuneration report
81
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Performance out-turns and incentives
Annual bonus §
The maximum award for both the Chief Executive and Chief Financial Officer in 2017 was 120 per cent of salary, of which 50 per cent
is deferred for two and three years. This will remain unchanged for 2018.
Annual bonus payments are based on pre-determined performance measures. Given the commercial sensitivity, the Remuneration
Committee provides retrospective disclosure of targets. Two-thirds is based on adjusted EPS performance in the year, split evenly
between performance versus budget and prior year figures. The overall structure ensures that the maximum EPS related bonus
is only achievable if management outperform against both the Board’s expectations for the year and if there is an increase in EPS
on the prior year.
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 the objectives
include quantitatively assessed financial and operational measures and milestones. For 2018, the strategic objectives will include
objectives in the following key areas:
— performance of assets, including net rental income
— digital and the customer experience
— implementation of strategic priorities, including the Hammerson transaction
In the event that the recommended all-share offer by Hammerson to acquire intu completes in the year as expected, the bonus
framework would apply on a part-year basis.
Annual bonus – 2017 out-turn §
Performance against the targets for the 2017 short-term incentive arrangements is given below. As in previous years,
full retrospective disclosure of financial targets is provided.
Performance element
Weighting
Threshold
Target
Maximum
Adjusted EPS vs. budget
Adjusted EPS vs. prior year
33%
33%
13.5p
100%
14.2p
102.5%
14.9p
105%
Target
2017
performance
15p
100%
Out-turn
(% max element)
100%
0%
Scorecard of strategic and
operational measures
Total
33%
See details of scorecard performance
David Fischel Matthew Roberts
80%
60%
80%
60%
The strategic objectives in the annual bonus are a key part of the remuneration framework for incentivising and rewarding
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 and then exercises judgement in assessing performance in the key areas
selected. 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.
82
intu properties plc Annual report 2017
Directors’ remuneration report continued
For 2017, the Remuneration Committee determined that the strategic objective setting be simplified and included three headline
objectives, reflecting the Board’s strategic priorities. For 2017, the scorecard weightings and out-turns were as follows:
Headline objectives
Weighting
Specific objectives under
each area of focus
Scorecard
Summary achievement against objectives
Optimising performance
of existing assets
33.3%
Growing
net rental income
— Increased like-for-like net rental income for 2017, in line with investor guidance
— Increased gross life-for-like rental income (1%)
Optimisation of
existing assets
— Completion of new lettings successfully offsetting the closure of BHS stores
On-target achievement
Ensuring intu is alert to
the changing retail and
digital market place
33.3%
Customer
experience and
branding
— Pro-active response to the changing retail market place with expansion of
leasing strategy to include pop-ups, non-traditional tenants, big box retailers
and additional brands
— Development of centres to meet changing customer demand, including leisure
extensions at intu Watford and intu Lakeside, early ICT input for incorporation
of key operational technology backbone, and resort approach for intu Costa
del Sol
— Net promoter score maintained at levels consistent with prior years
— Strengthening of brand awareness, in both unprompted and prompted metrics
— Growth of intu Experiences, with delivery of above target net income
— Sustainability metrics – early achievement of 2020 target for reduction in
greenhouse gas emissions
Digital
— Continued growth of digital business, with strong sales performance in our
online shopping platform
— Development of social media profile and restructuring of Facebook utilisation
— Introduction of intu Accelerate, trialling a range of new innovative technology
led solutions
— Progress against GDPR objectives in advance of 2018 implementation
Upper quartile achievement
Strategic options and
corporate delivery
33.3%
Strategic options
— Review and identification of strategic options for intu
Strategic options
implementation
— Progression of all-share offer by Hammerson to acquire intu including:
— Leadership through the transition period
— Actions prioritising shareholder value focus through discussions
Corporate delivery
— Progression of pipeline, with all current projects on time and budget
— Successful acquisition of Madrid Xanadú
— Advancement of planning and pre-lets for intu Costa del Sol, with the
development of this flagship intu centre expected to commence in 2018
— Maintenance of strong financial flexibility throughout the year
— Disposal of 50 per cent of intu Chapelfield in line with December 2016
valuation, recycling capital into the development pipeline
— Delivery in Q3 2017 of measures to achieve significant reductions to our costs
— Evolution of our reward and recognition programme Win Your Dream,
recognising outstanding demonstration of the intu brand promise
— Increased staff engagement via ‘Toolbox’ talks, employee consultation forums
and publications
Maximum achievement
The resulting total short-term incentive payout for the Executive Directors in respect of 2017 was 72 per cent of salary (60 per cent
of maximum opportunity).
Directors’ remuneration report
Directors’ remuneration report
83
Deferral into shares
50 per cent of the 2017 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.
Deferred bonus awards granted in the year §
The table below summarises the deferred bonus awards granted during the year. These awards were made in March 2017 in respect
of the 2016 bonus.
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Individual
David Fischel
Matthew Roberts
Type of interest
Deferred bonus award
* Face value calculated using a five day average share price prior to date of grant of £2.85.
Face value of
2017 award*
£
336,000
268,000
Long-term incentives §
Awards with performance periods ending in the year – Performance Share Plan (PSP)
The LTIP awards shown in the single figure relate to awards due to vest in 2018. These relate to the first, second and final tranche of
the 2015, 2014 and 2013 PSP awards, respectively. The following table summarises vesting under these awards.
Award
Tranche
2015 PSP award
First tranche
2014 PSP award
Second tranche
2013 PSP award
Final tranche
Performance period
Three years to
31 December 2017
Four years to
31 December 2017
Five years to
31 December 2017
The performance condition for the above awards were as follows:
TSR
ranking
Vesting of
TSR portion
(% of max)
Absolute
Total Return
(per annum)
Vesting of
Absolute
Total Return
portion
(% of max)
Total
vesting
(% of max)
6th
6th
6th
Nil
Nil
Nil
6.1%
26.5%
13.2%
8.5%
72.7%
36.4%
6.7%
38.4%
19.2%
— half of awards vest by reference to TSR relative to the top-five UK-listed REITs with 25 per cent minimum vesting for TSR in line
with the third-ranked company; vesting of 60 per cent for TSR in line with the second-ranked company; full vesting for TSR in
line with the top-ranked company; and straight line vesting between points, proportionate to TSR achieved. This portion is also
subject to a committee-operated discretionary assessment of underlying financial performance
— half of the awards vest by reference to Absolute Total Return (NAV growth per share plus dividends) with 25 per cent minimum
vesting for 6 per cent per annum; full vesting for 10 per cent per annum; straight-line vesting in between. Awards lapse for
growth of less than 6 per cent per annum
PSP Awards granted during the year §
The table below summarises PSP awards granted during the year, in March 2017:
Individual
Type of interest
£
% of salary
Face value of 2017 award*
David Fischel
Matthew Roberts
PSP**
(nil cost options)
1,467,000
1,158,000
250%
250%
% vesting
at threshold
Performance period end
3 years
4 years
5 years
31 December
2019
31 December
2019
31 December
2020
31 December
2020
31 December
2021
31 December
2021
25%
25%
* Face value calculated using a five day average share price prior to date of grant of £2.85.
** 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 2018 award.
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Directors’ remuneration report continued
Awards for 2018
Awards for 2018 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:
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)
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
TSR in line with the third-ranked company
TSR in line with the top-ranked company
Straight line vesting between points, proportionate to
TSR achieved, with 60% vesting for TSR in line with the
second-ranked company. Subject to a Committee-operated
discretionary assessment of underlying financial performance
During the year, consideration was given to whether to introduce a further holding period under the performance share plan. The
Committee believes that the current performance period of three, four and five years, combined with clawback provisions of one
year following vesting, already provides strong alignment between the Executive Directors and shareholders, although this position
will be kept under review.
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.
Other share scheme information
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 (HMRC) regulations.
In 2016, intu implemented a HMRC approved Sharesave Plan (the intu Retail Services Sharesave Plan), offering a potential savings
contract of up to £500 a month for a period of three to five years. Participants are granted an option to acquire ordinary shares in
intu using the proceeds of their saving contract. The exercise price is set at the time of invitation to apply for the plan, with a discount
of 10% of the market value.
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.
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Impact of recommended all-share offer by Hammerson to acquire intu on Executive Director remuneration
On 6 December 2017, the recommended all-share offer by Hammerson to acquire intu was announced. In line with the
remuneration policy, awards granted under the Performance Share Plan will be subject to both pro-rating and an assessment of
performance. Deferred shares relating to prior bonuses will vest in full. A significant portion of the performance share awards are
not expected to vest.
David Fischel and Matthew Roberts will be treated as having been served notice of termination on the effective date of the
transaction. For a two month period they will be on garden leave but available as required to effect an orderly handover. Following
this they will receive a payment of salary and benefits in lieu of the balance of their notice period, in accordance with the
remuneration policy and their contractual terms.
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 2017.
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 Chief Executive and the average
for all of intu’s staff.
Chief Executive
All employees
Percentage change in remuneration from
31 December 2016 to 31 December 2017
Percentage change
in base salary
Percentage change
in benefits
Percentage change
in annual bonus
3%
5%
10%
33%
(35%)
(3%)
Shareholding and share interests §
Executive Directors must build up over time a holding of intu shares with a value equivalent to 200 per cent of salary. The
Remuneration Committee reviews shareholdings against the requirement on an annual basis to ensure they are met within an
appropriate timeframe.
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 2017 (% of salary)*
David Fischel
Matthew
Roberts
0
% of salary
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
Actual shareholding
Deferred shares
Unexercised share options (vested)
Shares subject to performance conditions
Shareholding requirement
* Value of shareholding calculated based on 12 month average share price to 31 December 2017.
As shown above David Fischel fulfils his shareholding requirement. Matthew Roberts has yet to meet his requirement, which was
increased to 200 per cent of salary last year.
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Directors’ remuneration report continued
The table below sets out the Executive Directors’ interests in shares as at 31 December 2017.
Number of shares owned
(including connected persons)
Conditional shares not subject
to performance conditions
Unvested awards
Vested awards
Held in
own name
Held in SIP
trust for
> 5 years
Deferred
shares
Held in SIP
trust for
< 5 years
PSP
subject to
performance
conditions1
Options
subject to
performance
conditions
Unexercised
unapproved
options2
Unexercised
approved
options
Options
exercised in
the year
Executive
David Fischel
1,155,030
Matthew Roberts
341,992
10,465
2,823
252,519
199,565
10,573
1,901,189
9,623
1,489,431
–
–
1,382,972
481,387
12,906
11,203
–
–
1. 2013 performance share plan awards held as fixed-value zero-cost options and jointly owned shares.
2. Held as jointly owned shares. The outstanding options represent the unexercised element of the jointly owned shares portion of the 2009 and 2010 unapproved options.
3. No changes in the interests of Directors have occurred between 31 December 2017 and 22 February 2018.
Vested
2009 ESOS awards Awards of market value share options, with an exercise price of 232.41 pence. These awards became
exercisable on 28 February 2013 and may be exercised until 28 May 2019.
2010 ESOS awards Awards of market value share options, with an exercise price of 267.75 pence. These awards became
exercisable on 26 May 2013 and may be exercised until 26 May 2020.
Unvested
2013 PSP
(third tranche)
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 per annum to 10 per cent
per annum), in three equal tranches over three, four and five years. Any awards that vest may be exercised
until 21 May 2023.
2014 PSP award
(second and third
tranche)
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 per annum to 10 per cent
per annum), in three equal tranches over three, four and five years. Any awards that vest may be exercised
until 12 May 2024.
2015 PSP
2016 PSP
2017 PSP
Awards of performance shares, granted on 11 March 2015. Vesting is based on TSR (relative to the top five
UK-listed REITs) and Absolute Total Return performance (ranging from 6 per cent per annum to 10 per cent per
annum), in three equal tranches over three, four and five years. Any awards that vest may be exercised until
11 March 2025.
Awards of performance shares, granted on 7 March 2016. Vesting is based on TSR (relative to the top five
UK-listed REITs) and Absolute Total Return performance (ranging from 6 per cent per annum to 10 per cent per
annum), in three equal tranches over three, four and five years. Any awards that vest may be exercised until
7 March 2026.
Awards of performance shares, granted on 10 March 2017. Vesting is based on TSR (relative to the top five
UK-listed REITs) and Absolute Total Return performance (ranging from 6 per cent per annum to 10 per cent
per annum), in three equal tranches over three, four and five years. Any awards that vest may be exercised
until 10 March 2027.
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Nine-year TSR chart
The following graph shows the TSR for intu properties plc over the nine-year period ended 31 December 2017, 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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Nine-year Total Shareholder Return (TSR) performance
250
250
200
200
150
150
100
100
50
50
0
0
1 Jan 2009
31 Dec 2009
31 Dec 2010
31 Dec 2011
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
intu properties plc
FTSE 350 Real Estate
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 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.
For additional context, the following two charts have been provided to show intu’s absolute total return (NAV growth plus dividends)
and total property return (capital value growth adjusted for capex and net income expressed as a percentage of capital employed)
over the same period. intu’s total property return is shown relative to the IPD monthly retail index. These two charts have been
provided as growth in these metrics supports the delivery of long-term returns to our shareholders.
Absolute Total Return
170
160
150
140
130
120
110
100
90
2009
2010
2011
2012
2013
2014
2015
2016
2017
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Directors’ remuneration report continued
Total Property Return
130
125
120
115
110
105
100
2009
2010
2011
2012
2013
2014
2015
2016
2017
intu
IPD monthly retail index
Chief Executive remuneration history
The table below sets out historical details of Chief Executive pay.
CEO single figure of total remuneration
Annual bonus payout (% maximum)
Long-term incentive plan vesting in year
(% maximum)
2009
2010
2011
2012
2013
2014
2015
2016
2017
£1,044k
50%
£1,350k
100%
£1,275k
83%
£1,810k
70%
£1,081k
55%
£1,154k
65%
£1,653k
95.3%
£1,814k
95.3%
£1,493k
60.0%
0%
0%
0%
100%
0%
0%
37.6%
36.4%
23.0%
Shareholder context
The table below shows the advisory vote on the 2016 Annual remuneration report (including the Committee Chairman’s statement)
and the binding vote on the Directors’ remuneration policy at the 2017 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.
2016 Annual Remuneration Report (2017 AGM)
Directors’ Remuneration Policy (2017 AGM)
For
99.6%
99.5%
Against
Abstentions
0.4%
0.5%
1.1m
0.8m
Additional disclosures
Other directorships
Executive Directors are not generally encouraged to hold external directorships unless the Chairman of the Board 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.
During 2017, David Fischel’s principal external appointment was with Prozone Intu Properties Limited. Prozone Intu Properties
Limited is an Indian shopping centre owner and developer in which intu has a 33 per cent interest. David Fischel also holds an
external appointment as a Non-Executive Director of Marlowe Investments (Kent) Limited, a UK private company which relates to
his family affairs, does not require any significant time commitment and does not conflict in any way with his role as Chief Executive
of intu.
During 2017, David Fischel did not receive a fee in respect of his appointment as a Non-Executive Director of Prozone Intu
Properties Limited. He received and retained a fee of £5,000 in respect of his non-executive directorship of Marlowe Investments
(Kent) Limited.
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During 2017, Matthew Roberts was appointed as a Non-Executive Director of Marston’s PLC. He received and retained a fee of
£50,000 per annum in respect of this role. With effect from 23 January 2018, he was appointed Chairman of the Audit Committee
of Marston’s PLC for which he will receive an additional fee of £7,000 per annum.
Payments to former Directors §
A life presidency fee of £150,000 per annum (2016: £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.
Departure of Chairman §
Patrick Burgess retired as Chairman on 3 May 2017. He received fees and benefits in respect of the services performed as Chairman
up to and including 3 May 2017. No additional payments were made.
Payments for loss of office §
There were no payments for loss of office made to any Director 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 2017 in respect of their services as Alternate Directors. Raymond Fine
received a fee of £173,189 in respect of consultancy services provided to the Company in connection with South African tax and
shareholder issues, liaison with the Gordon Family and other related matters. Raymond Fine also had use of a company flat, the
benefit of which, following a recent HMRC review, is estimated at £39,000 in respect of 2017.
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 under letters of appointment 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
John Strachan (appointed Chairman 3 May 2017)
Patrick Burgess (retired 3 May 2017)
Adèle Anderson
Richard Gordon
Andrew Huntley (retired 3 May 2017)
Rakhi Goss-Custard
Louise Patten
Andrew Strang
John Whittaker
Notice period
12 months
12 months
12 months
–
Contract term expires
2019 AGM
2018 AGM
–
2019 AGM
2020 AGM
2018 AGM
2020 AGM
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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 2016 to the financial year ended 31 December 2017.
Underlying earnings (£m)
£200m
200
£201m
+0.5%
Dividend paid (£m)
200
£183m
£188m
+2.7%*
Total employee pay expenditure (£m) +9.4%
100
160
120
80
40
0
2016
2017
160
120
80
40
0
*
£83.2m
£91.0m
75
50
25
0
2016
2017
Increase due to dividend per share
of 14.0p (2016: 13.7p).
2016
2017
The average number of staff employed by the Group during the financial year to 31 December 2017 was 2,603 (2016: 2,550).
Chairman and Non-Executive
Director fees for 2018 §
The Chairman receives a fee of £275,000
per annum.
The basic non-executive director fee
is £59,000 per annum. 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 were last
increased in April 2015 and will remain
unchanged in 2018. Additional fees may
be paid to Non-Executive Directors on a
per diem basis to reflect increased time
commitment in certain limited
circumstances, which will apply for time
spent on the Hammerson transaction.
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 £215,000 per
annum 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. This payment is
disclosed in the related party transactions
note on page 155.
Remuneration Committee
membership in 2017
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 of the
Board, 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 of the
Committee are set out in its terms of
reference which are available on the
Company’s website, intu.co.uk.
The Remuneration Committee currently
comprises three independent Non-
Executive Directors. Throughout the year
the Committee consisted of Louise Patten
and Adèle Anderson. Andrew Huntley
retired on 3 May 2017 and Rakhi Goss-
Custard was appointed to the Committee
on 3 May 2017.
The Chairman of the Board, Chief
Executive, Company Secretary, HR
Director and on occasion 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 6 times in 2017. A summary of
attendance is set out on page 78.
Advisers to the Committee
Deloitte LLP was appointed as the
Committee’s independent remuneration
adviser in October 2013, following a
competitive tender process. During the
year, Deloitte provided advice on
remuneration governance developments,
corporate reporting and investor
engagement, market data and other
remuneration matters that materially
assisted the Committee.
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Representatives from Deloitte also
attended Committee meetings during the
year. The fees paid to Deloitte in respect
of this work in 2017 totalled £83,950.
During the year Deloitte also provided to
the Group tax compliance and advisory
services, share scheme advice and
financial advisory planning services in
relation to the UK-based properties.
Deloitte is a founding member of the
Remuneration Consultants Group,
and adheres to its code of conduct.
Deloitte was 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
Louise Patten
Chairman of the Remuneration
Committee
22 February 2018
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Policy table extract from the Directors’ remuneration policy approved by shareholders on 3 May 2017
A full copy of our Directors’ remuneration policy, binding for three years from May 2017, is included in the 2016 annual report
(starting on page 88), which can be found on the Company’s website, at intugroup.co.uk/en/investors/intu-annual-report-2016/.
The Directors’ remuneration policy was approved by 99.5 per cent of shareholders at the 2017 annual general meeting.
Element and link to strategy
Operation
Maximum potential value
Performance metrics
Executive Directors
Base salary
To provide an appropriately
competitive level of base pay to
attract and retain talent.
None.
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.
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.
Pension
To help provide for an
appropriate retirement benefit.
The Company operates an
approved defined contribution
pension arrangement.
Company pension contribution (or
cash alternative) is up to 24 per cent
of base salary.
None.
Other benefits
To provide an appropriately
competitive level of benefits.
A cash alternative may be offered
in certain circumstances, for example
where HMRC statutory limits have
been reached.
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.
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.
Car allowance of up to £18,000
per annum.
None.
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.
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Element and link to strategy
Operation
Maximum potential value
Performance metrics
Executive Directors (continued)
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.
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 critical
executives.
Maximum annual opportunity of
120 per cent of salary.
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 and
annual bonus payments may be subject
to clawback.
intu operates a PSP, which was approved
by shareholders at the 2013 AGM.
Normal maximum grant size of 250
per cent of salary per annum.
In exceptional circumstances
opportunity of up to 375 per cent of
salary. The intention is that this
flexibility would only be
contemplated in recruitment
circumstances.
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 and clawback to awards in
certain circumstances.
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.
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 2017, 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.
All employee share plans
To align interests of employees
with intu’s performance.
Executive Directors may participate in
HMRC approved share incentive plans
on the same basis as all employees.
Participants can contribute up to
the relevant HMRC limit.
None.
Legacy share awards
Payments can also be made to Executive Directors under the legacy share option plan and equivalent jointly owned equity arrangements, which were the
predecessor arrangements to the current PSP and were approved by shareholders in 1999. Under this plan, market value share option grants were made,
with vesting based on EPS growth. It is not intended that this plan will be used to grant any future awards to the Executive Directors.
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Element and link to strategy
Operation
Performance metrics
Non-Executive Directors
Fees
To remunerate
Non-Executive Directors.
Independent Non-Executive Directors
The Chairman’s fees are determined by the Remuneration Committee.
None.
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. Non-Executive Directors do not
currently receive any benefits however these may be provided in the future if in
the view of the Board this was considered appropriate.
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).
None.
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intu properties plc Annual report 2017
Directors’ report
The Directors present their annual
report and the audited financial
statements of the Group and Company
for the year ended 31 December 2017.
Pages 2 to 95 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 48 to 53,
accounting policies on pages 112 to 116
and note 28 on pages 137 to 143
contain information on the use of
financial instruments.
Dividends
The Directors declared an interim
ordinary dividend of 4.6 pence (2016: 4.6
pence) per share on 27 July 2017, which
was paid on 21 November 2017, and have
recommended a final dividend for 2017
of 9.4 pence per share (2016: 9.4 pence).
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 30 on
pages 144 and 145.
No shareholder holds securities carrying
special rights with regard 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.
amended and restated on 19 February
2010, 18 November 2011 and 30 October
2014) between, among 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 (i)
£160.4 million of 2.5 per cent Guaranteed
Convertible Bonds issued on 4 October
2012 by Intu (Jersey) Limited and (ii) £375
million of 2.875 per cent Guaranteed
Convertible Bonds issued on 1 November
2016 by Intu (Jersey) 2 Limited, each of
which are 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 (ie lower than the prevailing
exchange price). In addition, bondholders
would become entitled for a limited
period of 60 days to require the relevant
issue to redeem their bonds at their
principal amount, together with accrued
and unpaid interest.
Under a £351.75 million term facility
agreement dated 19 March 2013 (as
amended and restated on 19 June 2015)
between, among others, Intu (SGS) Finco
Limited (‘SGS Finco’) and HSBC Bank plc
(as ‘Facility Agent’), on a change of
control of the Company, if directed by a
lender, the Facility Agent may by notice to
SGS Finco declare all outstanding loans
of that lender, together with accrued
interest and all other amounts accrued
and owing to that lender under the
finance documents, immediately due
and payable.
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.
Under a £600 million revolving-facility
agreement dated 25 February 2009 (as
The Company does not have any specific
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. Further details can
be found in the Directors’ remuneration
report on page 85. The terms of
appointment of the non-executive
directors currently provide that in the
event of change of control, these
directors will be compensated for any
additional time commitment in certain
limited circumstances, to be calculated
on a per diem basis.
Internal control
The statement on corporate governance
on pages 60 to 95 includes the Board’s
assessment following a review of internal
controls and consideration of the FRC
Guidance on risk management, internal
control and related financial and
business reporting.
Directors
The Directors of intu who held office
during the year were as follows:
Chairman
Patrick Burgess1
John Strachan2
Deputy Chairman
John Whittaker3
Executive
David Fischel
Matthew Roberts
Non-Executive
Adèle Anderson
Richard Gordon3
Andrew Huntley1
Rakhi Goss-Custard
Louise Patten
Andrew Strang
1
Patrick Burgess and Andrew Huntley stepped down
on 3 May 2017.
2 John Strachan was appointed Chairman on
3 May 2017.
3 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.
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.
Additional information relating to the
Directors can be found in note 43 on
pages 158 and 159 on Directors’ interests,
in the governance section on pages 60 to
77, and in the Directors’ remuneration
report on pages 78 to 93.
Directors’ remuneration report
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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 30 on page 145.
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 accordance with the Disclosure
Guidance and Transparency Rules
of the FCA at 31 December 2017
and 20 February 2018.
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. Details of the
intu all-employee survey are provided in
the Our people section on pages 54 to 56.
The annual bonus plan arrangements
help develop employees’ interest in the
Company’s performance; full details of
these arrangements are given in the
Directors’ remuneration report on pages
78 to 93. Note 40 on pages 156 to 158
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 54 to 56 and in note 7
on page 118. The Group provides
retirement benefits for the majority
of its employees. Details of the Group
pension arrangements are set out in
note 41 on page 158.
The environment
We have an independent 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 on pages 57 to 59, and a
summary booklet is also available for
download from the website or on request
from the Company Secretary’s office.
The Company recognises the importance
Shareholder
The Peel Group
Coronation Asset Management
(Pty) Limited
The family interests of
Sir Donald Gordon
Public Investment Corporation
Black Rock, Inc.
At 31 December 2017
At 20 February 2018
Number of
shares notified
% interest in
share capital
Number of
shares notified
% interest
in share capital
368,635,097
27.21
368,635,097
27.21
276,688,604
20.42
278,891,219
20.58
110,336,261
82,471,068
69,702,816
8.20
6.09
5.14
110,336,261
82,471,068
68,566,906
8.20
6.09
5.06
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 £4.9 million (2016: £2.1 million)
(see note 9). 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 2018 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
Company Secretary
22 February 2018
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intu properties plc Annual report 2017
Statement of Directors’ responsibilities
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 (‘IFRS’s) 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.
The Directors are responsible for
the maintenance and integrity of 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 financial statements, 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
position and performance, business
model and strategy. Each of the Directors,
whose names and functions are listed
in the governance section on pages
62 and 63 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 strategic 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
22 February 2018
David Fischel
Chief Executive
Matthew Roberts
Chief Financial Officer
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Financial statements
Independent auditors’ report
Consolidated income statement
98
105
Consolidated statement of comprehensive income 106
Balance sheets
Statements of changes in equity
Statements of cash flows
Notes to the financial statements
107
108
111
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Independent auditors’ report to
the members of intu properties plc
Report on the audit of the financial statements
Opinion
In our opinion, intu properties plc’s Group financial statements and Company financial statements (the “financial statements”):
—(cid:3)give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2017 and of the Group's
profit and the Group's and the Company's cash flows for the year then ended;
—(cid:3)have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Company's
financial statements, as applied in accordance with the provisions of the Companies Act 2006; and
—(cid:3)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.
We have audited the financial statements, included within the Annual Report, which comprise: the Group and Company balance
sheets as at 31 December 2017; the Group consolidated income statement and consolidated statement of comprehensive
income, the Group and Company statements of cash flows, and the Group and Company statements of changes in equity for
the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section
of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the Company.
Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the Group or the
Company in the period from 1 January 2017 to 31 December 2017.
Our audit approach
Context
During the year to 31 December 2017, there have been no significant changes to business operations, investment property market
yields, or to accounting standards relevant to the Group. On 6 December 2017, Hammerson plc made an all-share offer to acquire
the entire share capital of the Company. The most significant transactional activity was in relation to the acquisition and subsequent
disposal of a 50% interest in Madrid Xanadú and the agreement to dispose of a 50% interest in intu Chapelfield. Our audit approach
is largely consistent with the prior year.
Overview
(cid:3)
Materiality
Audit scope
Key audit
matters
—(cid:3)Overall Group materiality: £107.9m (2016: £103.6m), based on 1% of Total Assets.
—(cid:3)Overall Company materiality: £38.8m (2016: £39.2m), based on 1% of Total Assets.
—(cid:3)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.
—(cid:3)Valuation of investment and development property.
—(cid:3)intu Costa del Sol development property.
—(cid:3)Acquisition of Madrid Xanadú and subsequent 50% disposal.
—(cid:3)intu Chapelfield – Held for sale (50% disposal).
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The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates,
and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed
audit procedures at Group level to respond to the risk, recognising that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a
material misstatement in the Group and Company financial statements, including, but not limited to, the Companies Act 2006
and the UK tax legislation as applicable to a REIT. Our tests included, but were not limited to, review of the financial statement
disclosures to underlying supporting documentation, review of correspondence with the regulators, enquiries of management,
and review of internal audit reports in so far as they related to the financial statements. There are inherent limitations in the audit
procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we would become aware of it.p
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk
of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the
Directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by
our audit.
Key audit matter
Valuation of Investment and Development Property
Refer to page 71 (Audit committee report), pages 114 to 115
(Accounting policies), page 112 (significant use of estimates
and assumptions) and note 14 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 and Development Properties are shopping
centres and development projects and comprise the majority of the
assets in the Group balance sheet, their carrying value amounting to
£9.18 billion.
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. Moreover, in 2017 there were relatively few relevant UK
shopping centre transactions against which to compare yield
assessments.
The valuations were carried out by third party valuers, CBRE, Knight
Frank, Cushman & Wakefield and Jones Lang LaSalle (the “Valuers”).
The Valuers were engaged by the Directors, and performed their work
in accordance with the Royal Institution of Chartered Surveyors (“RICS”)
Valuation – Global Standards 2017.
The Valuers used by the Group are well-known firms, with considerable
experience of the market in which the Group operates.
Investment Property – 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 other assumptions such as yield and current
(cid:3)
(cid:3)
How our audit addressed the key audit matter
Assessing the Valuers’ expertise and objectivity
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.
Data provided to the Valuers – Investment Property
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
have been tested during our audit.
Assumptions and estimates used by the Valuers – Investment Property
We read the valuation reports for all properties and attended meetings
with each of the Valuers. Our testing also involved the use of our internal
real estate valuation experts who are qualified chartered surveyors.
We confirmed that the valuation approach for each property was in
accordance with RICS and suitable for use in determining the carrying
value in the Group balance sheet.
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. Whilst there was little directly
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Independent auditors’ report to the
members of intu properties plc continued
Key audit matter
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.
Development Property – Development properties are valued using
the residual appraisal method (i.e. by estimating the fair value of
the completed project using the income capitalisation method less
estimated costs to completion including a market based profit margin
providing a return on development risk).
intu Costa del Sol development
Refer to page 71 (Audit committee report), pages 114 to 115
(Accounting policies), page 112 (significant use of estimates and
assumptions) and note 14 to the financial statements.
Land at Costa del Sol (‘the project’), which was previously held
at cost as a close approximation of fair value, has been valued at
31 December 2017 on a development appraisal basis using an
assumption of obtaining final planning permissions for the project.
Further, upon achievement of planning permission, intu’s development
partner, Eurofund, is due an allocation of equity as a consideration for
services provided in relation to this development project. This has now
been recognised as an equity settled share-based payment crediting
equity of the Group. On settlement of the transaction, the credit to
equity is expected to be transferred to non-controlling interests.
Acquisition of Madrid Xanadú and subsequent 50% disposal
Refer to page 71 (Audit committee report), pages 113 and 116
(Accounting policies), page 112 (significant areas of judgement)
and notes 16, 33 and 34 to the financial statements.
On 10 March 2017, intu acquired the Madrid Xanadú shopping
centre from Ivanhoe Cambridge Inc. The acquisition was accounted
for as a business combination.
How our audit addressed the key audit matter
comparable transactional based evidence, the disposals of 50% interests
in intu Chapelfield and Madrid Xanadú, which transacted at amounts
close to prior valuations, provided support for the investment yields
being used.
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
were otherwise deemed unusual, and/or there were unexpected
movements, we undertook further investigations and, when necessary,
held further discussions with the Valuers.
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.
Development Property
In 2017, the principal development property was intu Costa del Sol.
In relation to this property the Group used external expert reports to
assist them in arriving at estimated rental cashflows (used for income
capitalisation) and construction costs assumptions for the development
appraisal. We carried out procedures, on a sample basis, to test whether
this property specific information supplied to the Valuers by the Group
was reasonable and in line with the external expert reports. We also
considered the reasonableness of market assumptions such as
investment yields and market based profit margin, involving our
internal real estate valuation experts.
Overall findings
Our procedures indicated that the estimates and assumptions used were
appropriate in the context of the Group’s investment and development
property portfolio and reflected recent market transactions and the
market circumstances as at year end.
In respect of the assumption in relation to the receipt of the final
planning permission, we reviewed the approved general planning
permission as well as legal advice obtained by the Group, which sets
out the status of planning permissions. Based on this legal advice,
discussions held with management and the Valuers, we concur that
planning status is now sufficiently advanced for a development
appraisal valuation methodology to be appropriate.
In respect of the equity allocation, we reviewed supporting evidence
setting out arrangements with Eurofund. As it will be settled in equity of
a subsidiary of the Group it is deemed appropriate that the transaction is
treated as an equity settled share-based transaction under IFRS 2,
‘Share-based payments’. Given the Group currently owns 100% of the
equity of the subsidiary, it is appropriate to not recognise non-controlling
interests in the current financial year.
With respect to the acquisition, we inspected the purchase agreements
and assessed whether the classification as a business combination and
treatment of the various aspects of the transaction were in accordance
with IFRS 3 ‘Business Combinations’.
We carried out procedures to assess the fair value of the consideration
and of the assets and liabilities being acquired, the most significant being
the investment property – for which we reviewed the Valuers’ report
valuing the property on the date of acquisition involving our internal real
estate valuation experts.
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On 26 May 2017, intu exchanged contracts with TH Real Estate, on
behalf of its European Cities Fund, to form a 50/50 joint venture in
relation to Madrid Xanadú. On 31 July 2017, following receipt of the
regulatory approvals, the transaction completed.
intu Chapelfield – Held for sale (50% disposal)
Refer to page 71 (Audit committee report), page 116 (Accounting
policies), page 112 (significant areas of judgement) and note 35 to the
financial statements.
In November 2017, intu announced the disposal of a 50% interest in
intu Chapelfield creating a joint venture with LaSalle Investment
Management (on behalf of Greater Manchester Pension Fund and
West Yorkshire Pension Fund – ‘the purchaser’).
As at 31 December 2017, contracts had been exchanged, but the
completion of the transaction was subject to EU merger clearance.
The assets and liabilities relating to intu Chapelfield have therefore
been classified as ‘Held for sale’.
How our audit addressed the key audit matter
With respect to the disposal, we read the sale and purchase agreement
and other documents related to the sale to determine whether it was
appropriate to account for Madrid Xanadú as a joint venture. No issues
arose from these procedures – the shareholders’ agreement grants each
party an equal number of board members all with equal voting rights
and, because all decisions about the relevant activities of the business
require the consent of both parties, Madrid Xanadú was deemed to be
subject to joint control. We also considered the financial statement
disclosures in respect of the initial acquisition and the subsequent part
disposal and concluded that they are in accordance with applicable
accounting standards (IFRS 3 ‘Business combinations’ and IFRS 12
‘Disclosure of interests in other entities’).
We have inspected the agreement entered into with the purchaser
and note the completion was subject to the necessary EU merger
clearance which has subsequently been received on 11 January 2018.
The classification of 100% of the disposal group as ‘Held for sale’ in
the 31 December 2017 Group Balance Sheet is consistent with the
requirements of IFRS 5 ‘Non-current Assets Held for Sale and
Discontinued Operations’.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
How we tailored the audit scope
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 structure of the Group and the Company, the accounting processes and controls,
and the industry in which they operate.
As part of designing our audit, we determined materiality and assessed 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.
Although the Group has some interests in shopping centre operations outside the UK and the Group is structured as two operating
segments, it operates a single reporting process 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.
For Manchester Arndale, Cribbs Causeway, Centaurus Retail Park 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 perform tests of controls over the review of the quarterly submissions and entry
onto the Group’s general ledger, and tests of details over the numbers within those submissions.
Quarterly submissions are also submitted to the Group’s finance department for intu Asturias, Puerto Venecia and Madrid Xanadú,
by the intu Spain finance team. We carry out controls testing over these submissions in the same manner as for the UK submissions
as above. We instructed the PwC Spain audit team to perform specified substantive procedures on the submission packs prepared
by intu Spain, and held regular discussions with PwC Spain throughout the planning and execution phases of the audit. We assessed
the findings of the work performed by them in order to conclude whether sufficient appropriate audit evidence had been obtained
as a basis for our opinion on the Group financial statements as a whole.
Materiality
The scope of our audit was 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 on the individual financial statement line items and disclosures and in evaluating the effect of misstatements,
both individually and in aggregate on the financial statements as a whole.
102
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
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:
Materiality level
£107.9m (2016: £103.6m).
£9.8m (2016: £9.7m).
£38.8m (2016: £39.2m).
Overall materiality
Specific materiality
Overall materiality
Group financial statements
Company financial statements
How we determined it
1% of Total Assets.
Rationale for benchmark applied
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.
5% of Underlying Earnings Before
Tax and Associates.
We have applied this lower
materiality to line items that make
up underlying earnings before tax
and associates, plus other finance
costs, on the basis that they merit
more detailed audit work than the
overall materiality level would
require, given heightened focus
from users of the accounts. We
have used underlying earnings
before tax and associates as a more
consistent benchmark, which is not
impacted by valuation movements.
1% of Total Assets.
In arriving at this judgement we
have had regard to the carrying
value of the Company’s assets,
acknowledging that the primary
measurement attribute of the
Company is the carrying value
of its investment in subsidiaries.
This represents a consistent
year-on-year basis for determining
materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £10.8 million
(Group audit) (2016: £10.3 million) and £3.8m (Company audit) (2016: £3.9m) as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to in respect of
the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting in preparing the financial statements and
the Directors’ identification of any material uncertainties to the Group’s and the Company’s ability
to continue as a going concern over a period of at least twelve months from the date of approval
of the financial statements.
We have nothing material to add or to
draw attention to. However, because
not all future events or conditions can be
predicted, this statement is not a guarantee
as to the Group’s and Company’s ability
to continue as a going concern.
We are required to report if the Directors’ statement relating to Going Concern in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the
other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement,
we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or
a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report based on
these responsibilities.
With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the
disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06),
ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as
described below (required by ISAs (UK) unless otherwise stated).
103
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Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance
Statement (on pages 60 to 96) about internal controls and risk management systems in relation to financial reporting processes
and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules
sourcebook of the FCA (“DTR”) is consistent with the financial statements and has been prepared in accordance with applicable
legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit,
we did not identify any material misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance
Statement (on pages 60 to 96) with respect to the Company’s corporate governance code and practices and about its
administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the
DTR. (CA06)
We have nothing to report arising from our responsibility to report if a corporate governance statement has not been prepared
by the Company. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
—(cid:3)The Directors’ confirmation on pages 38 and 39 of the Annual Report that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
—(cid:3)The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
—(cid:3)The Directors’ explanation on page 70 of the Annual Report as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of
the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially
less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their
statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code
(the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the Group and
Company and their environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
—(cid:3)The statement given by the Directors, on page 96, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in
the course of performing our audit.
—(cid:3)The section of the Annual Report on pages 71 to 75 describing the work of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
—(cid:3)The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
Responsibilities for the financial statements and the audit
104
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Independent auditors’ report to the
members of intu properties plc continued
Responsibilities for the financial statements and the audit
Responsibilities of the Directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 96, the Directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true
and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue
as a going concern, disclosing as applicable matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative
but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
—(cid:3)we have not received all the information and explanations we require for our audit; or
—(cid:3)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
—(cid:3)certain disclosures of Directors’ remuneration specified by law are not made; or
—(cid:3)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.
Appointment
On its formation, we were appointed as auditors of Liberty International plc (the Company's predecessor) for the year ended
31 December 1999 and subsequent financial periods. Our predecessor firm were auditors of the pre-existing Group, prior to group
restructurings and renamings, for the period ended 31 December 1980 and subsequent financial periods. Considering this, the
period of total uninterrupted engagement with the Group is at least 37 years, covering the period ended 31 December 1980 to
the year ended 31 December 2017.
Ranjan Sriskandan
(Senior Statutory Auditor)
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
22 February 2018
Consolidated income statement
for the year ended 31 December 2017
(cid:3)
Revenue
Net rental income
Net other income
Revaluation of investment and development property
Gain on acquisition of businesses
Loss on disposal of subsidiaries
Gain on sale of other investments
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
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105
105
2016
£m
594.3
406.1
0.6
(78.0)
34.6
(0.3)
74.1
(37.8)
(2.5)
396.8
(202.9)
14.9
(37.9)
(16.3)
(242.2)
154.6
32.1
1.6
188.3
–
(16.5)
(16.5)
171.8
182.7
(10.9)
171.8
13.7p
11.2p
Notes
3
3
14
33
4
19
5
6
9
9
9
9
9
16
18
10
10
10
12
12
2017
£m
616.0
423.4
3.0
30.8
–
(1.8)
–
(40.9)
(5.9)
408.6
(213.9)
12.6
(38.9)
22.0
(218.2)
190.4
35.5
1.3
227.2
0.1
(24.0)
(23.9)
203.3
216.7
(13.4)
203.3
16.1p
15.0p
Details of underlying earnings are presented in the underlying profit statement on page 169. Underlying earnings per share are
shown in note 12(c).
106
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Consolidated statement
of comprehensive income
for the year ended 31 December 2017
(cid:3)
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to the income statement:
Revaluation of other investments
Exchange differences
Tax relating to components of other comprehensive income
Total items that may be reclassified subsequently to the income statement
Transferred to the income statement:
On sale of other investments
Tax on sale of other investments
Total transferred to the income statement
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Attributable to:
Owners of intu properties plc
Non-controlling interests
Notes
19
10
19
10
2017
£m
203.3
(0.2)
16.9
0.1
16.8
–
–
–
16.8
220.1
233.5
(13.4)
220.1
2016
£m
171.8
0.4
31.6
(0.2)
31.8
(77.0)
16.7
(60.3)
(28.5)
143.3
154.2
(10.9)
143.3
Balance sheets
at 31 December 2017
(cid:3)
Non-current assets
Investment and development property
Plant and equipment
Investment in Group companies
Investment in joint ventures
Investment in associates
Other investments
Goodwill
Derivative financial instruments
Trade and other receivables
Current assets
Assets classified as held for sale
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Liabilities associated with assets classified as held for sale
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Other payables
Total liabilities
Net assets
Equity
Share capital
Share premium
Treasury shares
Other reserves
Retained earnings
Attributable to owners of intu properties plc
Non-controlling interests
Total equity
Notes
14
15
16
18
19
22
20
35
20
21
35
23
24
22
24
22
29
30
30
31
32
107
107
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Group
2017
£m
9,179.4
12.2
–
735.5
64.8
16.8
4.0
0.3
102.5
Group
2016
£m
Company
2017
£m
Company
2016
£m
9,212.1
7.6
–
587.6
65.2
15.5
4.0
–
99.1
–
10.4
2,892.3
–
–
6.0
2,820.9
–
–
–
–
–
–
–
–
–
–
–
10,115.5
9,991.1
2,902.7
2,826.9
–
1,095.0
0.9
1,095.9
3,922.8
–
(704.7)
(0.3)
–
–
309.1
141.9
228.0
679.0
–
123.4
254.7
378.1
–
980.2
0.8
981.0
10,794.5
10,369.2
3,883.7
(6.2)
(288.5)
(0.1)
(186.7)
(8.0)
(489.5)
–
(281.0)
(0.3)
(142.4)
(37.0)
(460.7)
–
(573.7)
–
–
(4.9)
(578.6)
(705.0)
(4,811.1)
(4,520.2)
(233.8)
(339.8)
(23.7)
(1.2)
(340.7)
–
(1.2)
(5,175.8)
(4,862.1)
(5,665.3)
(5,322.8)
(28.3)
–
–
(262.1)
(840.7)
(10.0)
(14.4)
–
–
(24.4)
(729.4)
5,129.2
5,046.4
3,043.0
3,193.4
677.5
1,327.4
(39.1)
361.1
2,748.1
5,075.0
54.2
5,129.2
677.5
1,327.4
(40.8)
344.3
2,670.4
4,978.8
67.6
5,046.4
677.5
1,327.4
(39.1)
61.4
1,015.8
3,043.0
–
3,043.0
677.5
1,327.4
(40.8)
61.4
1,167.9
3,193.4
–
3,193.4
A profit of £36.3 million is recorded in the financial statements of the Company in respect of the year (2016: loss of £67.1 million).
No income statement or statement of comprehensive income is presented for the Company as permitted by Section 408 of the
Companies Act 2006.
These consolidated financial statements have been approved for issue by the Board of Directors on 22 February 2018.
David Fischel
Chief Executive
Matthew Roberts
Chief Financial Officer
The notes on pages 112 to 159 form part of these consolidated financial statements.
108
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Statements of changes in equity
for the year ended 31 December 2017
Group
At 1 January 2017
Profit/(loss) for the year
Other comprehensive income:
Revaluation of other investments (note 19)
Exchange differences
Tax relating to components
of other comprehensive income (note 10)
Total comprehensive income for the year
Dividends (note 11)
Share-based payments (note 40)
Other share related transaction (note 40)
Acquisition of treasury shares
Disposal of treasury shares
Attributable to owners of intu properties plc
Share
capital
£m
Share
premium
£m
Treasury
shares
£m
Other
reserves
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
£m
Total
equity
£m
677.5
1,327.4
(40.8)
344.3
2,670.4
4,978.8
67.6
5,046.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.3)
3.0
1.7
–
216.7
216.7
(13.4)
203.3
(0.2)
16.9
0.1
16.8
–
–
–
–
–
–
–
–
–
(0.2)
16.9
0.1
–
–
–
(0.2)
16.9
0.1
216.7
233.5
(13.4)
220.1
(187.9)
(187.9)
2.3
49.4
–
(2.8)
2.3
49.4
(1.3)
0.2
(139.0)
(137.3)
–
–
–
–
–
–
(187.9)
2.3
49.4
(1.3)
0.2
(137.3)
At 31 December 2017
677.5
1,327.4
(39.1)
361.1
2,748.1
5,075.0
54.2
5,129.2
109
109
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Attributable to owners of intu properties plc
Share
capital
£m
Share
premium
£m
Treasury
shares
£m
Other
reserves
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
£m
Total
equity
£m
672.3
1,303.1
(43.3)
372.8
2,671.5
4,976.4
78.5
5,054.9
Group
At 1 January 2016
Profit/(loss) for the year
Other comprehensive income:
Revaluation of other investments (note 19)
Exchange differences
Tax relating to components
of other comprehensive income (note 10)
Transferred to income statement on sale of
other investments
Total comprehensive income for the year
–
–
–
–
–
–
–
–
–
–
–
–
Ordinary shares issued (note 30)
5.2
24.3
Dividends (note 11)
Share-based payments (note 40)
Acquisition of treasury shares
Disposal of treasury shares
–
–
–
–
–
–
–
–
5.2
24.3
–
–
–
–
–
–
–
–
–
(0.7)
3.2
2.5
–
182.7
182.7
(10.9)
171.8
0.4
31.6
16.5
(77.0)
(28.5)
–
–
–
–
–
–
–
–
–
–
182.7
–
0.4
31.6
16.5
(77.0)
154.2
29.5
(182.5)
(182.5)
1.9
–
(3.2)
1.9
(0.7)
–
(183.8)
(151.8)
–
–
–
–
(10.9)
–
–
–
–
–
–
0.4
31.6
16.5
(77.0)
143.3
29.5
(182.5)
1.9
(0.7)
–
(151.8)
At 31 December 2016
677.5
1,327.4
(40.8)
344.3
2,670.4
4,978.8
67.6
5,046.4
110
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Statements of changes in equity continued
for the year ended 31 December 2017
Company
At 1 January 2017
Profit for the year
Total comprehensive income for the year
Dividends (note 11)
Share-based payments (note 40)
Acquisition of treasury shares
Disposal of treasury shares
Attributable to owners of intu properties plc
Share
capital
£m
Share
premium
£m
Treasury
shares
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
677.5
1,327.4
(40.8)
61.4
1,167.9
3,193.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.3)
3.0
1.7
–
–
–
–
–
–
–
36.3
36.3
36.3
36.3
(187.9)
(187.9)
2.3
–
(2.8)
2.3
(1.3)
0.2
(188.4)
(186.7)
At 31 December 2017
677.5
1,327.4
(39.1)
61.4
1,015.8
3,043.0
Company
At 1 January 2016
Loss for the year
Total comprehensive loss for the year
Ordinary shares issued (note 30)
Dividends (note 11)
Share-based payments (note 40)
Acquisition of treasury shares
Disposal of treasury shares
Attributable to owners of intu properties plc
Share
capital
£m
Share
premium
£m
Treasury
shares
£m
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
672.3
1,303.1
(43.3)
61.4
1,418.8
3,412.3
–
–
5.2
–
–
–
–
–
–
24.3
–
–
–
–
5.2
24.3
–
–
–
–
–
(0.7)
3.2
2.5
–
–
–
–
–
–
–
–
(67.1)
(67.1)
–
(67.1)
(67.1)
29.5
(182.5)
(182.5)
1.9
–
(3.2)
1.9
(0.7)
–
(183.8)
(151.8)
At 31 December 2016
677.5
1,327.4
(40.8)
61.4
1,167.9
3,193.4
111
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Statements of cash flows
for the year ended 31 December 2017
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
Cash transferred to assets classified as held for sale
Sale of other investments
Additions to other investments
Additions to investment in subsidiaries
Disposal of subsidiaries net of cash sold
Investment of capital in joint ventures
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
Cash transferred from/(to) restricted accounts
Borrowings drawn
Borrowings repaid
Equity dividends paid
Cash flows from financing activities
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
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Notes
37
33
35
19
19
15
34
16
16
16
16
21
21
Group
2017
£m
365.6
(232.4)
7.6
0.1
Group
2016
£m
355.9
(233.0)
8.5
–
Company
2017
£m
2.2
(22.8)
–
–
Company
2016
£m
556.0
(20.8)
–
–
140.9
131.4
(20.6)
535.2
(189.5)
3.7
(446.7)
(0.5)
–
(1.5)
–
104.1
(0.7)
(3.0)
14.8
1.2
(120.9)
–
(405.5)
–
201.9
(14.1)
–
80.5
–
(1.2)
12.7
3.2
(6.9)
(3.4)
–
–
–
–
–
–
–
–
–
–
(4.4)
(24.4)
–
–
–
–
–
–
–
–
–
–
(518.1)
(243.4)
(11.3)
(27.8)
–
(1.3)
0.2
0.1
1,199.2
(660.0)
(188.0)
350.2
0.4
(26.6)
251.7
225.1
0.3
(0.7)
–
(0.8)
962.9
(720.4)
(152.6)
88.7
1.4
(21.9)
273.6
251.7
–
(1.3)
0.2
–
220.9
–
(188.0)
31.8
–
(0.1)
0.9
0.8
0.3
(0.7)
–
–
–
(353.8)
(152.6)
(506.8)
–
0.6
0.3
0.9
112
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intu properties plc Annual report 2017
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Notes to the financial statements
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), interpretations issued by
the International Financial Reporting Standards Interpretations
Committee and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
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 assets and liabilities that have been measured
at fair value. A summary of the significant accounting policies
applied is set out in note 2.
These accounting policies are consistent with those applied
in the last annual financial statements, as amended when
relevant to reflect the adoption of new standards, amendments
and interpretations which became effective in the year.
These amendments have resulted in changes to financial
statement disclosures.
A number of standards and amendments to standards have
been issued but are not yet effective for the current year.
The most significant of these are set out below:
—(cid:3)IFRS 9 Financial Instruments (effective from 1 January 2018)
– The standard applies to classification and measurement
of financial assets and financial liabilities, impairment
provisioning and hedge accounting. The Group has
completed its impact assessment of the standard in which
the main areas of impact have been identified as impairment
provisioning in respect of trade receivables and other
financial assets as well as the accounting treatment on
the derecognition of other investments. The impairment
provisioning approach has been refined in accordance
with the new accounting standard to reflect the expected
collection of trade receivables; however, no material
quantitative differences have been identified from the
impairment provisioning in accordance with the previous
accounting standard. In respect of other investments, the
Group will make an irrevocable election to recognise
movements in other investments through other
comprehensive income, consistent with current accounting
treatment. Under IFRS 9 on sale of other investments, any
cumulative gains or losses are not reclassified to the income
statement, but are transferred from other comprehensive
income to retained earnings. No other changes to existing
accounting treatments are required
—(cid:3)IFRS 15 Revenue from Contracts with Customers (effective
from 1 January 2018) – The standard is applicable to service
charge income and facilities management income, but
excludes lease rental income arising from contracts with
the Group's tenants. The Group has completed its impact
assessment of the standard and assessed all significant
revenue streams from which there were no changes to
existing accounting treatments. The Group will continue
to assess new transactions as they arise or as immaterial
revenue streams become material
—(cid:3)IFRS 16 Leases (effective 1 January 2019) – This standard
does not significantly affect the current accounting for rental
income earned. The Group holds a number of small operating
leases as lessee which are affected by this standard; however,
these are not material to the financial statements
– significant estimates and judgements
The preparation of financial statements in conformity with the
Group’s accounting policies requires management to make
judgements and use estimates 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 judgements and estimates are
based on management’s best knowledge of the amount, event
or action, the actual result ultimately may differ from those
judgements and estimates.
– significant use of estimates and assumptions
Valuation of investment and development property – See
investment and development property accounting policy
in note 2 as well as note 14 for details on estimates and
assumptions used in the valuation process and sensitivities.
Valuation of derivative financial instruments – See derivative
financial instruments accounting policy in note 2 as well
as note 28 for details on sensitivities of estimates and
assumptions used.
– significant areas of judgement
Accounting for acquisitions – Management uses significant
judgement to determine whether an acquisition of property
should be accounted for as an asset acquisition or a business
combination. See business combinations accounting policy in
note 2 as well as further detail on judgements made in note 33.
Assessing control over joint arrangements – Management uses
significant judgement to assess control of joint arrangements
(eg part disposals of subsidiaries). See basis of consolidation in
note 2 as well as further detail on judgements made in note 34.
Non-current assets and disposal groups held for sale –
Management uses significant judgement to determine whether
an asset in the process of being disposed of (including part
disposals) should be classified as an asset held for sale. See
assets held for sale accounting policy in note 2 as well as
further detail on judgements made in note 35.
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 report on pages 6 to 59. The financial
position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the financial review on
pages 48 to 53. In addition, note 28 includes the Group’s risk
management objectives, details of its financial instruments
and hedging activities, its exposure to liquidity risk and details
of its capital structure.
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1 Accounting convention and basis of preparation
(continued)
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 £278.2 million of cash (including the Group’s
share of cash in joint ventures of £50.2 million) and £406.9
million of undrawn facilities at 31 December 2017. The Group’s
weighted-average debt maturity of 6.6 years and 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 consider it appropriate to continue to
adopt the going concern basis of accounting in preparing the
Group’s financial statements.
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. Control
exists when the Company 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 over 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 presentational 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 recorded 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 if they relate to hedging of net investments in a foreign
operation or for loans to foreign subsidiary entities considered
to be part of the net investment in those entities, in which case
these amounts are recorded in other comprehensive income.
114
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Notes to the financial statements continued
2 Accounting policies – Group and Company (continued)
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.
Rental income receivable is recognised on a straight-line basis
over the term of the lease.
Contingent rents, being those lease payments that are
dependent on unknown future events, the most significant
being incremental rents linked to tenant revenues or increases
arising on rent reviews, are recorded as income in the periods
in which they are earned. In respect of rents linked to tenant
revenues, where information is not available, management
uses estimates based on knowledge of the tenant and past
data. 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.
Directly attributable lease incentives are recognised within
rental income on the same basis as the underlying lease income.
Service charge income, facilities management income and
management fees are recognised on an accruals basis in line
with the service being provided.
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 is expected 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 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. For more
detail see treasury shares accounting policy.
Interest income
Interest income is accrued on a time basis by reference to the
principal outstanding and the effective interest rate.
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. Underlying earnings is considered to be a key
measure in understanding the Group’s financial performance,
and excludes exceptional items. Underlying earnings are
explained further in the financial review on page 48 and
reconciled in note 12(c).
Taxation
Current tax is the expected tax payable on the taxable income
for the year and any adjustment in respect of prior years. It is
calculated using rates applicable at the balance sheet date.
Deferred tax is provided using the balance sheet liability method
providing for temporary differences between the carrying
amounts of assets and liabilities in the balance sheet and the
amounts used for tax purposes.
Temporary differences are not provided on: goodwill not
deductible for tax purposes, 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.
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 with the
exception of certain development land where an assessment
of fair value may be made internally. External valuations are
received for significant development land once required
planning permissions are obtained. Valuations conform with
the Royal Institution of Chartered Surveyors (RICS) Valuation –
Global Standards 2017.
The main estimates and assumptions underlying the valuations
are described in note 14.
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2 Accounting policies – Group and Company (continued)
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 interest rate 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 as a finance or operating lease 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
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.
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.
Goodwill
Goodwill arising on business combinations is carried at cost
less accumulated impairment losses. Goodwill is assessed for
impairment on an annual basis.
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.
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 other comprehensive income to the
income statement.
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.
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.
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.
116
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Notes to the financial statements continued
2 Accounting policies – Group and Company (continued)
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 schemes.
Borrowings
Borrowings are recognised initially at their net proceeds on issue
and subsequently carried at amortised cost with any transaction
costs, premiums or discounts recognised over the contractual
life using the effective interest method. This excludes certain
financial instruments such as convertible bonds as detailed in
note 26.
In the event of early repayment, all unamortised transaction
costs are recognised immediately in the income statement.
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 Financial Instruments
Presentation. Each bond is assessed separately and the
detailed accounting treatment of each is given in note 26.
Derivative financial instruments
The Group uses derivative financial instruments to manage
exposure to interest rate 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 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 annual general meeting.
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 within one year
of the reporting date. All other assets are classified as non-
current assets.
Current liabilities include liabilities held primarily for trading
purposes, associated with assets held for sale and expected to
be settled 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 for the acquisition of a subsidiary
is the total of the fair values of the assets transferred, the
liabilities incurred and the equity interests issued by the Group.
The consideration 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 is 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.
Non-current assets and disposal groups held for sale
Non-current assets and corresponding disposal groups are
classified as held for sale when their carrying amount is to be
recovered principally through a sale which is considered highly
probable. They are stated at the lower of carrying amount and
fair value less costs to sell. Assets and liabilities are separately
grouped and presented on single lines in the balance sheet.
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3 Segmental reporting
Operating segments are determined based on the strategic and operational management of the Group. The Group is primarily
a shopping centre-focused business and has two reportable operating segments being the UK and Spain. Although certain areas
of business performance are reviewed and monitored on a centre-by-centre basis, the operating segments are consistent with
the strategic and operational management of the Group by the Executive Committee (the chief operating decision makers
of the Group).
As mentioned in the financial review, management review and monitor the business primarily on a proportionately consolidated
basis. As such, the segmental analysis has been prepared on a proportionately consolidated basis.
The key driver of underlying earnings which is used to measure performance is net rental income. An analysis of net rental income
is provided below:
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
Profit for the year
Group including share of joint ventures
UK
£m
513.5
109.7
2.8
626.0
(20.5)
(128.1)
(2.8)
(43.4)
431.2
140.4
Spain
£m
32.7
8.1
–
40.8
–
(8.8)
–
(3.2)
28.8
63.5
Total
£m
546.2
117.8
2.8
666.8
(20.5)
(136.9)
(2.8)
(46.6)
460.0
203.9
Less share of
joint ventures
£m
2017
Group total
£m
(42.8)
(8.7)
0.7
(50.8)
1.0
9.6
(0.7)
4.3
(36.6)
(0.6)1
503.4
109.1
3.5
616.0
(19.5)
(127.3)
(3.5)
(42.3)
423.4
203.3
1 The adjustment to profit for the year relates to the profit attributable to non-controlling interests within the Group’s investment in joint ventures.
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
Profit for the year
Group including share of joint ventures
Spain
£m
15.9
3.5
–
19.4
–
(3.7)
–
(1.8)
13.9
21.1
Total
£m
532.6
111.1
5.1
648.8
(25.4)
(127.2)
(5.1)
(44.1)
447.0
171.8
UK
£m
516.7
107.6
5.1
629.4
(25.4)
(123.5)
(5.1)
(42.3)
433.1
150.7
Less share of
joint ventures
£m
2016
Group total
£m
(48.1)
(9.5)
3.1
(54.5)
1.1
10.6
(3.1)
5.0
(40.9)
–
484.5
101.6
8.2
594.3
(24.3)
(116.6)
(8.2)
(39.1)
406.1
171.8
There were no significant transactions within net rental income between operating segments.
The Group’s geographical analysis of non-current assets is presented below. This represents where the Group’s assets reside and,
where relevant, where revenues are generated. In the case of investments this reflects where the investee is located.
UK
Spain
India
2017
£m
2016
£m
9,484.1
9,648.6
565.5
65.9
276.7
65.8
10,115.5
9,991.1
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Notes to the financial statements continued
3 Segmental reporting (continued)
An analysis of investment and development property, capital expenditure and revaluation surplus/(deficit) is presented below:
UK
Spain
Group including share of joint ventures
Less share of joint ventures
Group
Investment and development property
Capital expenditure
Revaluation surplus/(deficit)
2017
£m
9,373.8
818.7
10,192.5
(1,013.1)
9,179.4
2016
£m
9,537.5
407.0
9,944.5
(732.4)
9,212.1
2017
£m
184.1
62.6
246.7
(7.3)
239.4
2016
£m
92.5
22.3
114.8
(1.2)
113.6
2017
£m
(51.2)
98.5
47.3
(16.5)
30.8
2016
£m
(97.4)
33.6
(63.8)
(14.2)
(78.0)
4 Loss on disposal of subsidiaries
The loss on disposal of subsidiaries of £1.8 million includes a loss in respect of the final net asset value adjustment of intu Bromley
of £0.8 million as well as a loss in respect of the disposal of Madrid Xanadú to a joint venture of £1.0 million (see note 34). The 2016
loss of £0.3 million related to the disposal of intu Bromley (see note 34).
5 Administration expenses – exceptional
Exceptional administration expenses (see note 2 for definition of exceptional items) in the year totalled £5.9 million (2016: £2.5
million) and relate principally to corporate transactions, being the acquisition of Madrid Xanadú as well as costs associated with
the recommended all-share offer made by Hammerson plc in 2017. The 2016 costs related to the acquisition of the remaining
50 per cent of intu Merry Hill. These costs have been classified as exceptional based on their incidence.
6 Operating profit
Operating profit is arrived at after charging:
Staff costs (note 7)
Depreciation
Remuneration paid to the Company’s auditors (note 8)
7 Employees’ information
Wages and salaries
Social security costs
Pension costs (note 41)
Share-based payments (note 40)
2017
£m
91.0
2.9
0.8
Group
2017
£m
76.5
7.8
4.4
2.3
91.0
2016
£m
83.2
2.2
0.8
Group
2016
£m
71.1
6.6
3.6
1.9
83.2
At 31 December 2017 the number of persons employed by the Group was 2,589 (2016: 2,578). The Company had no employees
during the year (2016: none). The monthly average number of persons employed by the Group during the year is provided below:
Head office
Shopping centres
2017
Number
432
2,171
2,603
2016
Number
379
2,171
2,550
8 Auditors’ remuneration
Fees payable to the Company’s auditors and their associates for:
The audit of the Company’s annual financial statements
Other services to the Group – 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
Total fees
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119
119
2016
£000
266
439
705
48
753
753
2017
£000
351
438
789
49
838
838
1 Relates to review of the interim report of the Group, and interim reviews of certain subsidiary undertakings.
Fees payable to PricewaterhouseCoopers LLP (PwC) and its associates for services to the Company are not required to be
disclosed separately as they are included on a consolidated basis. Fees payable by the Group’s joint ventures in respect of 2017
were £114,000 (Group’s share), all of which relates to audit and audit-related services (2016: £151,000, of which £89,000 related
to audit and audit-related services and £62,000 related to other assurance services). The Group also used accounting firms other
than PwC for a number of assignments.
9 Net finance costs
On bank loans and overdrafts
On convertible bonds (note 26)
On obligations under finance leases
Finance costs1
Finance income
Amortisation of Metrocentre compound financial instrument
Payments on unallocated interest rate swaps and other costs2
Foreign currency movements2
Other finance costs
(Gain)/loss on derivative financial instruments
Loss/(gain) on convertible bonds designated as at fair value through profit or loss (note 26)
Change in fair value of financial instruments3
Net finance costs
2017
£m
192.0
17.5
4.4
213.9
(12.6)
5.9
34.6
(1.6)
38.9
(28.3)
6.3
(22.0)
218.2
2016
£m
189.2
9.3
4.4
202.9
(14.9)
5.9
34.7
(2.7)
37.9
47.2
(30.9)
16.3
242.2
1 Finance costs of £4.9 million were capitalised in the year ended 31 December 2017 (2016: £2.1 million).
2 Amounts totalling £33.0 million in the year ended 31 December 2017 (2016: £32.0 million) are treated as exceptional items, as defined in note 2, due to their nature and are
therefore excluded from underlying earnings (see note 12(c)). These finance costs include payments on unallocated interest rate swaps, foreign currency movements
and other fees.
3
Included within the change in fair value of derivative financial instruments are gains totalling £47.1 million (2016: £41.8 million) resulting from the payment of obligations under
derivative financial instruments during the year. Of these £26.1 million related to unallocated swaps (2016: £27.1 million).
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intu properties plc Annual report 2017
Notes to the financial statements continued
10 Taxation
Taxation for the year:
Overseas taxation
Overseas taxation – adjustment in respect of prior years
UK taxation – adjustment in respect of prior years
Current tax
Deferred tax:
On investment and development property
On other investments
On derivative financial instruments
On other temporary differences
Deferred tax
Total tax charge
2017
£m
0.2
(0.1)
(0.2)
(0.1)
24.8
–
–
(0.8)
24.0
23.9
2016
£m
0.1
–
(0.1)
–
–
(2.3)
16.4
2.4
16.5
16.5
Tax relating to components of other comprehensive income of £0.1 million (2016: £16.5 million) relates entirely to deferred tax
in respect of other investments.
The tax charge for 2017 and 2016 is 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 19.25% (2016: 20%)
Exempt property rental profits and revaluations
Additions and disposals of property and investments
Prior year corporation tax items
Non-deductible and other items
Overseas taxation
Unprovided deferred tax
Total tax charge
Details of deferred tax balances are given in note 29.
11 Dividends
Ordinary shares:
Prior year final dividend paid of 9.4 pence per share (2016: 9.1 pence per share)
Interim dividend paid of 4.6 pence per share (2016: 4.6 pence per share)
Dividends paid
Proposed final dividend of 9.4 pence per share
2017
£m
190.4
36.7
(32.8)
3.9
6.2
(0.3)
2.8
4.3
7.0
23.9
2017
£m
126.2
61.7
187.9
127.4
2016
£m
154.6
30.9
(20.1)
10.8
(6.8)
(0.1)
0.5
(0.6)
12.7
16.5
2016
£m
121.1
61.4
182.5
In 2016, the Company offered shareholders the option to receive ordinary shares instead of cash for the 2016 interim dividend
of 4.6 pence under the Scrip Dividend Scheme. As a result of elections made by shareholders 10,268,341 new ordinary shares of
50 pence each were issued on 22 November 2016 in lieu of dividends otherwise payable. This resulted in £29.2 million of cash
being retained in the business.
Details of the shares in issue and dividends waived are given in notes 30 and 31 respectively.
As a REIT, dividends are declared and paid in accordance with REIT legislation. See glossary for further information as well as the
financial review on page 53 for information on distributable reserves.
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12 Earnings per share
(a) Earnings per share
Basic and diluted earnings per share as calculated in accordance with IAS 33 Earnings Per Share.
2017
2016
Shares
million
Pence per
share
Earnings
£m
Shares
million
Pence per
share
Earnings
£m
216.7
Profit for the year attributable to owners of intu properties plc
Basic earnings per share1
216.7
1,343.2
16.1p
182.7
182.7
1,333.5
13.7p
Dilutive convertible bonds, share options and share awards
(1.9)
84.4
(21.6)
107.9
Diluted earnings per share
214.8
1,427.6
15.0p
161.1
1,441.4
11.2p
1 The weighted average number of shares used has been adjusted to remove shares held in the Employee Share Ownership Plan (ESOP).
(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
Adjusted for:
Gross
£m
2017
Net1
£m
216.7
Gross
£m
2016
Net1
£m
182.7
Revaluation of investment and development property (note 14)
(30.8)
(16.1)
78.0
71.8
Gain on acquisition of businesses (note 33)
Loss on disposal of subsidiaries (note 4)
Gain on sale of other investments (note 19)
Share of joint ventures’ items
Share of associates’ items
Headline earnings
Dilution2
Diluted headline earnings
Weighted average number of shares (million)
Dilution2
Diluted weighted average number of shares (million)
Headline earnings per share (pence)
Diluted headline earnings per share (pence)
1 Net of tax and non-controlling interests.
–
1.8
–
–
1.8
–
(15.9)
(17.2)
(1.1)
(1.1)
184.1
(1.9)
182.2
1,343.2
84.4
1,427.6
13.7p
12.8p
(34.6)
(34.6)
0.3
(74.1)
(14.2)
(1.1)
0.3
(74.1)
(14.2)
(1.1)
130.8
(21.6)
109.2
1,333.5
107.9
1,441.4
9.8p
7.6p
2 The dilution impact is required to be included as calculated in note 12(a) even where this is not dilutive for headline earnings per share.
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intu properties plc Annual report 2017
Notes to the financial statements continued
12 Earnings per share (continued)
(c) Underlying earnings per share
Underlying earnings per share is a non-GAAP measure but has been presented as it is considered to be a key measure of the
Group’s recurring performance and an indication of the extent to which dividend payments are supported by underlying operations
(see underlying profit statement on page 169). It excludes property and derivative movements, exceptional items and related tax.
The key difference from EPRA earnings, an industry standard comparable measure, relates to adjustments in respect of exceptional
items where EPRA is prescriptive about the adjustments that can be made. Underlying earnings is defined as an alternative
performance measure in the financial review on page 48. A reconciliation to EPRA earnings per share is provided within the
other information section.
Basic earnings per share (per note 12(a))
216.7
1,343.2
16.1p
182.7
1,333.5
13.7p
2017
2016
Earnings
£m
Shares
million
Pence per
share
Earnings
£m
Shares
million
Pence per
share
Adjusted for:
Revaluation of investment and development property (note 14)
(30.8)
Gain on acquisition of businesses (note 33)
Loss on disposal of subsidiaries (note 4)
Gain on sale of other investments (note 19)
Administration expenses – exceptional (note 5)
Exceptional finance costs (note 9)
Change in fair value of financial instruments (note 9)
Tax on the above
Share of joint ventures’ items
Share of associates’ items
Non-controlling interests in respect of the above
Underlying earnings per share
Dilutive convertible bonds, share options and share awards
–
1.8
–
5.9
33.0
(22.0)
24.0
(17.2)
(0.4)
(10.0)
201.0
1,343.2
6.7
84.4
(2.3)p
–
0.1p
78.0
(34.6)
0.3
–
(74.1)
0.4p
2.5p
(1.6)p
1.8p
(1.3)p
–
(0.7)p
15.0p
2.5
32.0
16.3
16.5
(12.3)
(1.1)
(6.2)
200.0
1,333.5
9.3
107.9
5.9p
(2.6)p
–
(5.6)p
0.2p
2.4p
1.2p
1.3p
(0.9)p
(0.1)p
(0.5)p
15.0p
Underlying, diluted earnings per share
207.7
1,427.6
14.5p
209.3
1,441.4
14.5p
13 Net asset value per share
(a) NAV per share (diluted, adjusted)
NAV per share (diluted, adjusted) is a non-GAAP measure but has been presented as it is considered to be a key measure of the
Group’s performance. The key difference from EPRA NAV per share, an industry standard comparable measure, is the exclusion of
interest rate swaps not currently used for economic hedges of debt as, in our view, this better allows management to review and
monitor the Group’s performance. NAV (diluted, adjusted) is defined as an alternative performance measure in the financial review
on page 48. A reconciliation to EPRA NAV per share is provided within the other information section.
Net
assets
£m
Shares
million
2017
NAV per
share
pence
Net
assets
£m
Shares
million
2016
NAV per
share
pence
NAV per share attributable to owners of intu properties plc1
5,075.0
1,343.4
378p
4,978.8
1,343.0
371p
Dilutive convertible bonds, share options and awards
–
1.8
2.6
3.5
Diluted NAV per share
Adjusted for:
5,075.0
1,345.2
377p
4,981.4
1,346.5
370p
Fair value of derivative financial instruments
Deferred tax on investment and development property
and other investments
Share of joint ventures’ items
Non-controlling interest recoverable balance not recognised
347.5
23.7
5.2
71.3
26p
377.7
2p
1p
5p
0.1
7.2
71.3
28p
–
1p
5p
NAV per share (diluted, adjusted)
5,522.7
1,345.2
411p
5,437.7
1,346.5
404p
1 The number of shares used has been adjusted to remove shares held in the ESOP.
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13 Net asset value per share (continued)
(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 and is equal to EPRA NNNAV per share presented in the other information section.
NAV per share (diluted, adjusted)
Fair value of derivative financial instruments
Excess of fair value of borrowings over carrying value
Deferred tax on investment and development property
and other investments
Share of joint ventures’ items
Non-controlling interests in respect of the above
Net
assets
£m
Shares
million
5,522.7
1,345.2
(347.5)
(430.8)
(23.7)
(47.8)
22.9
2017
NAV per
share
pence
411p
(26)p
(32)p
(2)p
(4)p
2p
Net
assets
£m
Shares
million
5,437.7
1,346.5
(377.7)
(375.0)
(0.1)
(9.4)
23.4
2016
NAV per
share
pence
404p
(28)p
(28)p
–
(1)p
2p
NNNAV per share (diluted, adjusted)
4,695.8
1,345.2
349p
4,698.9
1,346.5
349p
14 Investment and development property
Investment
property
£m
Development
property
£m
Total
£m
At 1 January 2016
Acquisition of intu Merry Hill (note 33)
Additions
Recognition of leasehold on Charter Place
Disposals
Disposal of intu Bromley (note 34)
Deficit on revaluation
Foreign exchange movements
At 31 December 2016
Acquisition of Madrid Xanadú (note 33)
Additions
Disposals
Disposal of Madrid Xanadú to joint venture (note 34)
Transfer of intu Chapelfield to assets held for sale (note 35)
(Deficit)/surplus on revaluation
Foreign exchange movements
At 31 December 2017
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 20)
Head leases included within finance leases in borrowings (note 24)
Market value of investment and development property
8,259.7
889.3
52.6
–
(2.0)
(179.4)
(17.2)
–
9,003.0
461.4
109.6
(3.1)
(472.3)
(302.0)
(59.0)
9.4
8,747.0
144.2
8,403.9
–
61.0
55.9
–
–
(60.8)
8.8
209.1
–
129.8
(0.3)
–
–
89.8
4.0
432.4
889.3
113.6
55.9
(2.0)
(179.4)
(78.0)
8.8
9,212.1
461.4
239.4
(3.4)
(472.3)
(302.0)
30.8
13.4
9,179.4
2017
£m
2016
£m
9,179.4
9,212.1
109.2
(80.2)
109.9
(80.2)
9,208.4
9,241.8
The market value of investment and development property at 31 December 2017 includes £8,831.9 million (31 December 2016:
£9,088.6 million) in respect of investment property and £376.5 million (31 December 2016: £153.2 million) in respect of development
property.
Investment and development property is measured at fair value in the Group’s balance sheet and categorised as Level 3 in the fair value
hierarchy (see note 28 for definition) as one or more significant inputs to the valuation are partly based on unobservable market data.
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Notes to the financial statements continued
14 Investment and development property (continued)
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 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.
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 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 presented below:
Cushman & Wakefield
CBRE
Knight Frank
Jones Lang LaSalle
Assets not valued externally held at cost
2017
£m
4,609.6
2,420.8
1,964.0
197.7
16.3
2016
£m
4,564.4
2,352.9
2,243.9
–
80.6
9,208.4
9,241.8
In addition to the above, investment properties in the Group’s joint ventures were valued by CBRE, Cushman & Wakefield,
Knight Frank and Jones Lang LaSalle.
Assets not valued externally held at cost relate to certain development land. These amounts have been reviewed internally and it
has been concluded that the cost is the appropriate carrying value and so no valuation adjustment is needed. As the developments
advance these will be valued by independent external valuers.
In respect of the intu Costa del Sol development site near Málaga, Spain, as the General Plan of Torremolinos was approved in
the year, with the remaining consents expected in the coming months, the Group obtained an independent external valuation at
31 December 2017 as cost is no longer an appropriate approximation of fair value. The valuation is based on the assumption that
planning approval is in place at the valuation date.
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 at 31 December 2017 was determined by independent
external valuers at that date other than certain development land as detailed above. The valuations are in accordance with the
Royal Institution of Chartered Surveyors (RICS) Valuation – Global Standards 2017 and were arrived at by reference to market
transactions for similar properties and rent profiles. 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 in place at the valuation date 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.
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14 Investment and development property (continued)
In respect of development valuations, deductions are then made for anticipated costs, including an allowance for developer’s profit
and any other assumptions before arriving at a valuation.
Annual property income as disclosed in the following table 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 of investment property 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 £1,055.5 million (31 December 2016: £1,062.9 million), while a 50 basis point increase would result in
a decrease in the total market value of £806.5 million (31 December 2016: £834.9 million). Additionally, development property is
sensitive to income, cost and developer’s profit assumptions included in the valuations.
The tables below provide details of the assumptions used in the valuation of the core portfolio and key unobservable inputs:
Market value
£m
Net initial
yield (EPRA)
Nominal
equivalent yield
2017
Annual property
income
£m
Market value
£m
Net initial
yield (EPRA)
Nominal
equivalent yield
2016
Annual property
income
£m
intu Trafford Centre
intu Lakeside
intu Merry Hill
intu Metrocentre
intu Braehead
intu Derby
Manchester Arndale
intu Victoria Centre
intu Watford
intu Eldon Square
intu Milton Keynes
Cribbs Causeway
2,324.0
1,416.5
931.1
929.0
533.1
458.0
456.4
355.5
336.0
322.7
285.0
240.0
3.7%
3.3%
3.8%
4.7%
5.1%
6.0%
4.1%
4.7%
4.0%
4.9%
4.4%
4.9%
4.3%
4.5%
5.0%
5.3%
6.1%
6.2%
5.1%
5.7%
5.1%
5.0%
4.9%
5.2%
93.7
53.2
42.4
48.1
28.1
28.9
21.3
19.5
15.8
16.1
13.7
12.9
2,312.0
1,375.0
898.5
945.2
546.2
450.0
445.8
360.5
336.0
317.7
281.0
238.9
2017
Net
£m
3.9%
3.7%
4.0%
4.5%
4.5%
5.8%
4.5%
4.6%
5.0%
4.3%
4.6%
4.6%
4.3%
4.5%
5.0%
5.3%
6.3%
6.2%
5.2%
5.7%
5.1%
5.1%
4.9%
5.6%
Cost
£m
Accumulated
impairment
£m
89.3
56.9
39.1
51.6
27.2
29.7
22.2
19.0
18.8
15.0
13.9
12.2
2016
Net
£m
15 Investment in Group companies
Company
At 1 January
Additions
Impairment reversal/(charge) in the year
Cost
£m
Accumulated
impairment
£m
3,338.1
(517.2)
2,820.9
3,313.7
(447.1)
2,866.6
4.4
–
–
67.0
4.4
67.0
24.4
–
–
(70.1)
(517.2)
24.4
(70.1)
2,820.9
At 31 December
3,342.5
(450.2)
2,892.3
3,338.1
The impairment reversal in the year and charge in prior year are principally the result of property valuation movements seen in the
relevant subsidiaries. The valuation of investment and development property is a significant estimate as referenced in note 1.
Impairment is assessed by comparing the carrying value against the underlying assets and liabilities of the respective subsidiaries.
Details of related undertakings are provided in note 38.
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Notes to the financial statements continued
16 Investment in joint ventures
The Group’s principal joint ventures own and manage investment and development property.
At 1 January 2017
Acquisition of joint venture interest (note 34)
Group’s share of underlying profit
Group’s share of other net profit/(loss)
Group’s share of profit
Investment of capital
Distributions
Loan advances
Loan repayments
Foreign exchange movements
At 31 December 2017
Represented by:
Loans to joint ventures
Group’s share of net assets
At 1 January 2016
Group’s share of underlying profit
Group’s share of other net profit/(loss)
Group’s share of profit/(loss)
Distributions
Loan advances
Loan repayments
Disposal of joint venture interest
Foreign exchange movements
At 31 December 2016
Represented by:
Loans to joint ventures
Group’s share of net assets
St David’s,
Cardiff
£m
355.2
–
13.4
(6.8)
6.6
–
–
–
(14.8)
–
347.0
83.6
263.4
intu
Merry Hill
£m
447.0
3.3
(4.3)
(1.0)
(1.0)
–
–
(445.0)
–
–
–
–
Puerto
Venecia
£m
119.4
–
0.6
8.9
9.5
–
–
–
–
5.0
133.9
99.1
34.8
St David’s,
Cardiff
£m
368.5
13.7
(14.3)
(0.6)
–
–
(12.7)
–
–
355.2
98.4
256.8
Madrid
Xanadú
£m
–
117.1
1.4
0.4
1.8
0.7
–
–
–
(0.2)
119.4
57.7
61.7
Puerto
Venecia
£m
85.9
0.7
19.4
20.1
–
–
–
–
13.4
119.4
95.3
24.1
intu
Asturias
£m
76.0
–
2.0
14.7
16.7
–
–
–
–
2.9
95.6
35.0
60.6
intu
Asturias
£m
53.4
0.8
12.9
13.7
–
–
–
–
8.9
76.0
33.9
42.1
2017
Total
£m
587.6
117.1
18.3
17.2
35.5
0.7
(1.2)
3.0
(14.8)
7.6
735.5
282.9
452.6
2016
Total
£m
991.9
19.8
12.3
32.1
(3.2)
1.2
(12.7)
(445.0)
23.3
587.6
232.2
355.4
Other
£m
37.0
–
0.9
–
0.9
–
(1.2)
3.0
–
(0.1)
39.6
7.5
32.1
Other
£m
37.1
1.3
(1.4)
(0.1)
(2.2)
1.2
–
–
1.0
37.0
4.6
32.4
At 31 December 2017, the boards of joint ventures had approved £13.8 million (2016: £15.7 million) of future expenditure for the
purchase, construction, development and enhancement of investment property. Of this, £12.7 million (2016: nil) is contractually
committed. These amounts represent the Group’s share.
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16 Investment in 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 2017 summary information and the summarised income statement of Madrid Xanadú is presented for the period from
31 July 2017, the date which it ceased being a 100 per cent owned subsidiary of the Group.
Summary information
Group’s interest
Principal place of business
Summarised income statement
Revenue
Net rental income
Revaluation of investment and development property
Loss on sale of other investments
Administration expenses – underlying
Administration expenses – exceptional
Finance costs
Change in fair value of financial instruments
Taxation
Profit
Attributable to non-controlling interests
Profit attributable to owners
Group’s share of profit
Summarised balance sheet
Investment and development property
Other non-current assets
Total non-current assets
Cash and cash equivalents
Other current assets
Total current assets
Current financial liabilities
Other current liabilities
Total current liabilities
Partners’ loans
Non-current financial liabilities
Other non-current liabilities
Total non-current liabilities
Net assets
Non-controlling interests
Net assets attributable to owners
Group’s share of net assets
St David’s,
Cardiff
£m
Puerto
Venecia
£m
Madrid
Xanadú
£m
intu
Asturias
£m
Other
£m
50%
Wales
50%
Spain
50%
Spain
50%
Spain
39.6
26.7
(13.6)
–
–
–
–
–
–
13.1
–
13.1
6.6
692.0
14.0
706.0
8.9
7.7
16.6
–
(12.6)
(12.6)
(167.2)
–
(16.1)
(183.3)
526.7
–
526.7
263.4
25.1
19.2
18.1
(0.4)
(1.9)
–
(15.9)
0.6
(0.1)
19.6
(0.6)
19.0
9.5
460.4
0.8
461.2
38.2
2.5
40.7
(17.0)
(13.9)
(30.9)
(198.3)
(199.6)
–
(397.9)
73.1
(3.4)
69.7
34.8
13.0
8.6
2.0
–
(1.1)
(1.0)
(4.4)
0.4
(0.9)
3.6
–
3.6
1.8
470.5
81.2
551.7
18.9
–
18.9
(6.1)
(15.2)
(21.3)
(115.4)
(230.9)
(79.7)
(426.0)
123.3
–
123.3
61.7
17.0
12.5
26.6
(0.3)
(1.0)
–
(7.5)
0.6
3.2
34.1
(0.7)
33.4
16.7
281.0
5.3
286.3
31.2
1.5
32.7
(6.2)
(1.9)
(8.1)
(70.0)
(105.2)
(11.4)
(186.6)
124.3
(3.1)
121.2
60.6
2017
Total
£m
113.5
79.9
33.1
(0.7)
(6.3)
(1.0)
(32.8)
2.3
2.2
76.7
(1.3)
75.4
35.5
2,169.2
105.0
2,274.2
103.2
21.1
124.3
(29.8)
(49.4)
(79.2)
(565.9)
(667.3)
(107.2)
18.8
12.9
–
–
(2.3)
–
(5.0)
0.7
–
6.3
–
6.3
0.9
265.3
3.7
269.0
6.0
9.4
15.4
(0.5)
(5.8)
(6.3)
(15.0)
(131.6)
–
(146.6)
(1,340.4)
131.5
–
131.5
32.1
978.9
(6.5)
972.4
452.6
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Notes to the financial statements continued
16 Investment in joint ventures (continued)
The 2016 summary information and the summarised income statement of intu Merry Hill is presented for the period to
22 June 2016, after which it became a 100 per cent owned subsidiary of the Group.
intu
Merry Hill
£m
St David’s,
Cardiff
£m
Puerto
Venecia
£m
intu
Asturias
£m
Other
£m
50%
England
50%
Wales
50%
Spain
50%
Spain
Summary information
Group’s interest
Principal place of business
Summarised income statement
Revenue
Net rental income
Revaluation of investment and development property
Administration expenses – underlying
Administration expenses – exceptional
Finance costs
Change in fair value of financial instruments
Taxation – underlying
Profit/(loss)
Group’s share of profit/(loss)
Summarised balance sheet
Investment and development property
Other non-current assets
Total non-current assets
Cash and cash equivalents
Other current assets
Total current assets
Current financial liabilities
Other current liabilities
Total current liabilities
Partners’ loans
Non-current financial liabilities
Other non-current liabilities
Total non-current liabilities
Net assets
Group’s share of net assets
2016
Total
£m
125.7
88.8
31.8
(4.9)
(0.8)
(41.6)
(3.2)
(0.1)
70.0
32.1
19.1
13.3
1.7
(1.9)
–
(4.3)
(3.2)
–
5.6
(0.1)
254.5
8.6
263.1
1,604.6
27.4
1,632.0
5.9
2.4
8.3
(0.5)
(5.4)
(5.9)
(4.6)
(131.8)
–
(136.4)
129.1
32.4
75.9
18.5
94.4
(18.8)
(33.2)
(52.0)
(459.8)
(425.1)
(14.4)
(899.3)
775.1
355.4
27.0
20.2
(8.5)
(0.5)
–
(13.1)
–
–
(1.9)
(1.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40.4
27.4
(28.6)
(0.1)
–
–
–
–
(1.3)
(0.6)
689.5
13.5
703.0
9.4
11.5
20.9
(0.2)
(13.3)
(13.5)
(196.8)
–
–
24.2
17.8
38.6
(1.4)
–
(14.9)
0.2
(0.1)
40.2
20.1
424.0
0.5
424.5
25.2
2.9
28.1
(12.1)
(9.9)
(22.0)
(190.6)
(191.8)
–
(196.8)
(382.4)
513.6
256.8
48.2
24.1
15.0
10.1
28.6
(1.0)
(0.8)
(9.3)
(0.2)
–
27.4
13.7
236.6
4.8
241.4
35.4
1.7
37.1
(6.0)
(4.6)
(10.6)
(67.8)
(101.5)
(14.4)
(183.7)
84.2
42.1
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17 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 both joint operations is England.
18 Investment in associates
At 1 January
Share of profit of associates
Foreign exchange movements
At 31 December
2017
£m
65.2
1.3
(1.7)
64.8
2016
£m
54.7
1.6
8.9
65.2
Investment in associates comprises a 32.4 per cent holding in the ordinary shares of Prozone Intu Properties Limited (‘Prozone’), a
listed Indian shopping centre developer, and a 26.8 per cent holding in the ordinary shares of Empire Mall Private Limited (‘Empire’).
Both companies are 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 investments in Prozone and Empire. The results 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, determined at 30 September 2017, by independent
professionally qualified external valuers in line with the valuation methodology described in note 14.
The market price per share of Prozone at 31 December 2017 was INR72 (31 December 2016: INR35), valuing the Group’s interest
at £41.1 million (31 December 2016: £20.3 million) compared to the carrying value of £45.1 million (31 December 2016: £45.5
million). As the share price of Prozone is lower than its carrying value, a review of the carrying value has been undertaken. The net
assets of Prozone principally comprise investment property which is held at fair value within the investment in associates line. As
with other Group investment property, it is subject to independent valuation to fair value and that valuation reflects the future cash
flows expected to be generated from those assets. As such the net asset carrying value recorded in the Group’s financial statements
is deemed to be a reasonable approximation of the value in use of the business and so no adjustment to that carrying value is
considered necessary.
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Notes to the financial statements continued
18 Investment in associates (continued)
Set out below is the summarised information of the Group’s investments in associates with financial information presented
at 100 per cent.
Summary information
Group’s interest
Summarised income statement
Revenue
Revaluation of investment and development property
Other income statement items
Profit/(loss) reported by associate
Attributable to non-controlling interests
Profit/(loss) attributable to owners
Group’s share of profit/(loss)
Summarised balance sheet
Investment and development property
Other non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Non-controlling interests
Net assets attributable to owners
Group’s share of net assets attributable to owners
Prozone
2017
£m
Empire
2017
£m
Total
2017
£m
Prozone
2016
£m
Empire
2016
£m
Total
2016
£m
32.4%
26.8%
32.4%
26.8%
9.1
5.5
(10.8)
3.8
(1.5)
2.3
0.8
270.3
24.2
7.6
(10.7)
(35.8)
255.6
(116.4)
139.2
45.1
4.8
(1.0)
(1.8)
2.0
–
2.0
0.5
79.3
2.9
4.0
(1.2)
(11.5)
73.5
–
73.5
19.7
13.9
4.5
(12.6)
5.8
(1.5)
4.3
1.3
349.6
27.1
11.6
(11.9)
(47.3)
329.1
(116.4)
212.7
64.8
7.1
19.7
(5.9)
20.9
(11.9)
9.0
2.9
265.7
15.8
8.8
(12.6)
(26.2)
251.5
(111.1)
140.4
45.5
3.2
(5.6)
(2.4)
(4.8)
–
(4.8)
(1.3)
81.3
1.0
2.1
(5.5)
(5.3)
73.6
–
73.6
19.7
10.3
14.1
(8.3)
16.1
(11.9)
4.2
1.6
347.0
16.8
10.9
(18.1)
(31.5)
325.1
(111.1)
214.0
65.2
19 Other investments
At 1 January
Additions
Disposals
Revaluation
Foreign exchange movements
At 31 December
These investments are available-for-sale investments and are analysed by type as follows:
Listed securities – equity
Unlisted securities – equity
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2016
£m
210.3
14.1
(209.4)
0.4
0.1
15.5
2016
£m
15.5
–
15.5
2017
£m
15.5
1.5
–
(0.2)
–
16.8
2017
£m
15.3
1.5
16.8
Listed investments are accounted for at fair value using the bid market value at the reporting date.
On 19 January 2016, the Group disposed of its interest of 11.4 million units in a US venture controlled by Equity One, receiving
£201.9 million. The transaction resulted in a gain of £74.1 million recognised in the income statement, after transfer from other
comprehensive income of £77.0 million and settlement costs.
20 Trade and other receivables
Current
Trade receivables
Amounts owed by subsidiary undertakings
Amounts owed by joint ventures
Other receivables
Net investment in finance leases
Prepayments and accrued income
Group
2017
£m
26.4
–
13.6
17.2
0.4
84.3
Group
2016
£m
22.1
–
9.9
15.4
0.5
75.5
Company
2017
£m
1.8
972.9
–
3.9
–
1.6
Company
2016
£m
–
1,093.5
–
0.8
–
0.7
Trade and other receivables – current
141.9
123.4
980.2
1,095.0
Non-current
Amounts owed by associates
Net investment in finance leases
Prepayments and accrued income
Trade and other receivables – non-current
4.7
1.2
96.6
102.5
–
1.5
97.6
99.1
–
–
–
–
–
–
–
–
Included within prepayments and accrued income for the Group of £180.9 million (2016: £173.1 million) are tenant lease incentives
of £109.2 million (2016: £109.9 million), of which £12.6 million are classified as current (2016: £12.3 million) and £96.6 million as
non-current (2016: £97.6 million).
Amounts owed by subsidiary undertakings are unsecured and repayable on demand.
132
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Notes to the financial statements continued
21 Cash and cash equivalents
Unrestricted cash
Restricted cash
Cash and cash equivalents
Group
2017
£m
225.1
2.9
228.0
Group
2016
£m
251.7
3.0
254.7
Company
2017
£m
Company
2016
£m
0.8
–
0.8
0.9
–
0.9
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.
22 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 28).
The derivative financial instruments held by the Company relate to the bondholder options (see note 26) and are classified as held
for trading.
23 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
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
102.1
105.2
6.1
0.3
–
137.9
10.9
31.2
288.5
6.9
0.1
–
128.8
10.3
29.7
281.0
–
0.5
–
553.1
11.5
0.3
8.3
–
–
–
684.6
11.9
0.1
8.1
573.7
704.7
Amounts owed to subsidiary undertakings are unsecured and repayable on demand.
133
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t
t
a
a
t
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e
e
m
m
e
e
n
n
t
t
s
s
2017
Fair
value
£m
28.1
161.0
189.1
2.4
191.5
20.4
49.5
98.6
85.9
393.1
212.1
139.7
32.9
470.2
277.3
482.7
486.2
535.7
410.0
402.3
267.9
377.3
24 Borrowings
Group
Current
Commercial mortgage backed securities (CMBS) notes
2.5% convertible bonds 2018 (note 26)
Current borrowings, excluding finance leases
Finance lease obligations
Carrying
value
£m
23.3
161.0
184.3
2.4
186.7
23.3
–
23.3
2.4
25.7
–
161.0
161.0
–
161.0
Secured
£m
Unsecured
£m
Fixed
rate
£m
Floating
rate
£m
Non-current
Revolving credit facility 2021 (including £88.8 million drawn in euros)
233.8
233.8
233.8
233.8
19.9
43.0
88.0
73.2
311.2
192.8
139.7
32.9
470.2
246.8
482.7
443.5
478.5
342.3
345.0
228.8
377.3
19.9
43.0
88.0
73.2
311.2
192.8
139.7
32.9
470.2
246.8
482.7
443.5
478.5
342.3
345.0
228.8
CMBS notes 2019
CMBS notes 2022
CMBS notes 2024
CMBS notes 2029
CMBS notes 2033
CMBS notes 2035
Bank loan 2019
Bank loan 2020
Bank loans 2021
Bank loan 2022
Bank loan 2024
3.875% bonds 2023
4.125% bonds 2023
4.625% bonds 2028
4.250% bonds 2030
Debenture 2027
2.875% convertible bonds 2022 (note 26)
Non-current borrowings, excluding finance leases and Metrocentre
compound financial instrument
Metrocentre compound financial instrument
Finance lease obligations
Total borrowings
Cash and cash equivalents (note 21)
Net debt
–
377.3
4,549.6
4,172.3
183.7
77.8
–
77.8
4,811.1
4,250.1
4,997.8
4,275.8
(228.0)
4,769.8
377.3
183.7
–
561.0
722.0
2,997.5
1,552.1
4,975.6
183.7
77.8
–
–
183.7
77.8
3,259.0
1,552.1
5,237.1
3,445.7
1,552.1
5,428.6
23.3
161.0
184.3
2.4
186.7
–
19.9
43.0
88.0
73.2
311.2
–
–
–
–
246.8
–
–
–
–
–
–
–
–
–
–
192.8
139.7
32.9
470.2
–
–
482.7
443.5
478.5
342.3
345.0
228.8
377.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Analysis of the Group’s net external debt is provided in the other information section.
The Group substantially eliminates its interest rate exposure to floating rate debt through interest rate swaps as described in
note 28.
The market value of investment property secured, either directly or indirectly, as collateral against borrowings at 31 December
2017 is £9,802.2 million including £1,001.0 million of investment property held within joint ventures (2016: £9,763.6 million
including £731.9 million held within joint ventures). 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 fair values of fixed rate borrowings and CMBS are assessed based on quoted market prices, and as such are categorised as
Level 1 in the fair value hierarchy (see note 28 for definition). The fair values of unlisted floating rate borrowings are equal to their
carrying values.
134
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intu properties plc Annual report 2017
Notes to the financial statements continued
24 Borrowings (continued)
Group
Current
Bank loans and overdrafts
CMBS notes
Current borrowings, excluding finance leases
Finance lease obligations
Non-current
Revolving credit facility 2021 (including nil drawn in euros)
CMBS notes 2019
CMBS notes 2022
CMBS notes 2024
CMBS notes 2029
CMBS notes 2033
CMBS notes 2035
Bank loan 2018
Bank loan 2020
Bank loans 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 26)
2.875% convertible bonds 2022 (note 26)
Non-current borrowings, excluding finance leases and Metrocentre
compound financial instrument
Metrocentre compound financial instrument
Finance lease obligations
Total borrowings
Cash and cash equivalents (note 21)
Net debt
Carrying
value
£m
Secured
£m
Unsecured
£m
125.1
14.9
140.0
2.4
142.4
10.0
19.8
50.5
87.8
78.7
325.4
190.6
494.8
32.8
468.9
442.4
477.5
341.7
344.8
228.4
308.1
362.4
125.1
14.9
140.0
2.4
142.4
10.0
19.8
50.5
87.8
78.7
325.4
190.6
494.8
32.8
468.9
442.4
477.5
341.7
344.8
228.4
–
–
4,264.6
3,594.1
177.8
77.8
–
77.8
4,520.2
3,671.9
4,662.6
3,814.3
(254.7)
4,407.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
308.1
362.4
670.5
177.8
–
848.3
848.3
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
Fixed
rate
£m
–
14.9
14.9
2.4
17.3
–
19.8
50.5
87.8
78.7
325.4
–
–
–
–
442.4
477.5
341.7
344.8
228.4
308.1
362.4
Floating
rate
£m
125.1
–
125.1
–
125.1
10.0
–
–
–
–
–
190.6
494.8
32.8
468.9
–
–
–
–
–
–
–
2016
Fair
value
£m
125.1
18.3
143.4
2.4
145.8
10.0
20.8
60.6
98.6
92.3
406.4
196.5
494.8
32.8
468.9
486.8
536.1
402.4
389.4
269.3
308.1
362.4
3,067.5
1,197.1
4,636.2
177.8
77.8
–
–
177.8
77.8
3,323.1
1,197.1
4,891.8
3,340.4
1,322.2
5,037.6
Group
2017
£m
184.3
175.5
1,445.9
3,111.9
4,917.6
Group
2016
£m
140.0
804.8
620.6
3,017.0
4,582.4
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 in the other information section).
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24 Borrowings (continued)
At 31 December 2017 the Group had committed borrowing facilities of £640.7 million, expiring in 2021, £406.9 million of which
was undrawn (2016: facilities £640.7 million, undrawn £630.7 million).
The Company had non-current borrowings of £233.8 million at 31 December 2017 consisting of a revolving credit facility expiring
in 2021 (2016: £10.0 million). This debt is floating rate, secured and its fair value is equal to book value.
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
2017
£m
2.4
9.5
115.1
127.0
(46.8)
80.2
2.4
9.5
68.3
80.2
Group
2016
£m
2.4
9.5
112.7
124.6
(44.4)
80.2
2.4
9.5
68.3
80.2
Finance lease liabilities are in respect of head leases on investment and development 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.
25 Movement in net debt
Group
At 1 January
Acquisition of businesses
Disposal of subsidiaries
Borrowings drawn
Borrowings repaid
Other net cash movements
Other non-cash movements
At 31 December
Liabilities from financing activities
Cash and
cash
equivalents
£m
Current
borrowings
£m
Non-
current
borrowings
£m
2017
Net
debt
£m
254.7
(216.0)
104.1
968.5
(660.0)
(223.3)
–
228.0
(142.4)
(4,520.2)
(4,407.9)
–
–
–
–
–
(44.3)
(230.7)
231.4
(968.5)
660.0
–
16.9
(446.7)
335.5
–
–
(223.3)
(27.4)
(186.7)
(4,811.1)
(4,769.8)
136
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
25 Movement in net debt (continued)
Group
At 1 January
Acquisition of businesses
Disposal of subsidiaries
Sale of other investments
Borrowings drawn
Borrowings repaid
Other net cash movements
Other non-cash movements
At 31 December
Liabilities from financing activities
Cash and
cash
equivalents
£m
Current
borrowings
£m
Non-
current
borrowings
£m
2016
Net
debt
£m
275.8
(102.6)
80.5
201.9
469.2
(529.6)
(140.5)
–
254.7
(139.3)
(4,332.3)
(4,195.8)
–
0.9
–
–
169.1
–
(173.1)
(142.4)
(302.9)
103.1
–
(469.2)
360.5
–
120.6
(405.5)
184.5
201.9
–
–
(140.5)
(52.5)
(4,520.2)
(4,407.9)
26 Convertible bonds
2.875 per cent convertible bonds (‘the 2.875 per cent bonds’)
On 1 November 2016 Intu (Jersey) 2 Limited (the ‘Issuer’) issued £375.0 million 2.875 per cent Guaranteed Convertible Bonds due
2022 at par, all of which remain outstanding at 31 December 2017. At 31 December 2017 the exchange price was £3.7506 per ordinary
share. intu properties plc has unconditionally and irrevocably guaranteed the due and punctual performance by the Issuer of all of its
obligations (including payments) in respect of the 2.875 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 2.875 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 2.875 per cent bonds can be converted at any time from the date which is 180 days prior to the
Final Maturity Date of 1 November 2022, to the 20th dealing date prior to the Final Maturity Date.
The initial exchange price was £3.7506 per ordinary share, a conversion rate of approximately 26,662 ordinary shares for every
£100,000 nominal of the 2.875 per cent bonds. Under the terms of the 2.875 per cent bonds, the exchange price is adjusted upon
certain events including the payment of dividends by the Company over a certain threshold.
The 2.875 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
2.875 per cent bonds originally issued have been converted or cancelled. If not previously converted, redeemed or purchased
and cancelled, the 2.875 per cent bonds will be redeemed at par on 1 November 2022.
The 2.875 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 change in fair value of financial instruments line.
At 31 December 2017, the fair value of the 2.875 per cent bonds was £377.3 million (2016: £362.4 million), with the change in
fair value reflected in note 9. The 2.875 per cent bonds are listed on the Channel Islands Securities Exchange and the Open Market
(Freiverkehr) of the Frankfurt Stock Exchange.
During the year interest of £10.8 million (2016: £1.8 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 £28.3 million as a derivative financial instrument
(2016: £0.5 million).
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, £160.4 million of which remains outstanding at 31 December 2017. At 31 December 2017 the exchange price was £3.1164 per
ordinary share. intu properties plc 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.
During the year the Group purchased and subsequently cancelled £139.6 million of 2.5 per cent bonds.
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26 Convertible bonds (continued)
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 Final Maturity Date of 4 October 2018.
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 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 change in fair value of financial instruments line.
At 31 December 2017, the fair value of the 2.5 per cent bonds was £161.0 million (2016: £308.1 million), with the change in fair
value reflected in note 9. The 2.5 per cent bonds are listed on the Professional Securities Market of the London Stock Exchange.
During the year interest of £6.7 million (2016: £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 £4.9 million as a derivative financial instrument
(2016: £13.9 million).
27 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 by the Group 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
2017
£m
431.2
1,179.4
1,141.0
2,751.6
2016
£m
431.5
1,261.7
1,330.3
3,023.5
The income statement includes £19.0 million (2016: £18.0 million) recognised in respect of contingent rents calculated by reference
to tenants’ turnover.
28 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’s treasury department. The policies for managing
each of these risks and their impact on the results for the year are summarised below.
Market risk
a) Interest rate risk
Interest rate risk comprises 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.
138
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intu properties plc Annual report 2017
Notes to the financial statements continued
28 Financial risk management (continued)
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 is 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
by using floating to fixed interest rate swaps in order to establish certainty over cash flows. 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 48 to 53.
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
2017
£m
2,998.2
1,371.6
4,369.8
Floating
2017
£m
1,607.0
(1,371.6)
235.4
94.9%
Fixed
2016
£m
3,086.5
829.7
3,916.2
Floating
2016
£m
1,380.2
(829.7)
550.5
87.7%
1 Borrowings are stated at nominal value and exclude the Metrocentre compound financial instrument and finance leases. At 31 December 2017 they include the £233.8 million
(2016: £10.0 million) drawn under the revolving credit facility (RCF) which incurs interest at a variable rate. Excluding the revolving credit facility, interest rate protection is
100 per cent (2016: 87.9 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 1.71 per cent (2016: 2.35 per cent).
Unallocated interest rate swaps are excluded from the above calculation. The nominal value of these swaps is £566.7 million
(2016: £566.7 million). Their fair value of £235.4 million (2016: £253.2 million) is included as a liability in the balance sheet.
The approximate impact of a 50 basis point increase in the level of interest rates would reduce the liability by £87.6 million
(2016: £78.5 million) in the fair value of derivatives. The approximate impact of a 50 basis point reduction in the level of interest
rates would increase the liability by £87.6 million (2016: £78.5 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 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 pounds sterling. At 31 December 2017 the exposure is 10.6 per cent of net assets attributable to shareholders
of the Group (31 December 2016: 7.2 per cent). Once the Eurofund future interest in the share capital of the intu Costa del Sol
development company concludes, we expect this to reduce to 9.7 per cent, below the Group’s policy of a maximum of 10 per cent.
The table summarises the Group’s exposure to foreign currency risk:
Net exposure
2017
€m
524.2
2016
€m
341.6
2017
INRm
2016
INRm
6,067.3
5,526.6
2017
US$m
0.1
2016
US$m
0.1
The following foreign exchange rates, at 31 December 2017, apply to the Group’s foreign exchange risk:
2017
€m
2016
€m
2017
INRm
2016
INRm
2017
US$m
2016
US$m
Foreign exchange rate
1.1266
1.1715
86.0441
83.8636
1.3513
1.2357
The approximate impact of a 10 per cent appreciation in foreign exchange rates would be positive movement of £59.6 million
(2016: £39.8 million) to equity attributable to owners of the Group. The approximate impact of a 10 per cent depreciation in foreign
exchange rates would be a negative movement of £48.8 million (2016: £32.5 million) to equity attributable to owners of the Group.
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28 Financial risk management (continued)
As part of the strategy to comply with the Group’s policy, the Group is able to borrow part of its RCF in euros, up to €100 million.
The RCF borrowings denominated in euros have been designated as a hedging instrument (net investment hedge) against the
Group’s net investment in Spain with the hedged risk being the changes in the euro/pounds sterling spot rate that will result in
changes in the value of the Group’s net investments in Spain. At 31 December 2017, €100 million (2016: nil) was drawn in euros.
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 by maintaining adequate cash, marketable securities
and committed facilities. Undrawn borrowing facilities are detailed in note 24. 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. At 31 December 2017, the maturity profile of
Group debt showed an average maturity of seven years (2016: seven 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 doing so 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 at the balance sheet date is used.
Group
Within 1 year
£m
1–2 years
£m
2–5 years
£m
Over 5 years
£m
2017
Total
£m
Borrowings (including interest)
(367.9)
(367.8)
(1,959.6)
(3,512.4)
(6,207.7)
Finance lease obligations
Other financial liabilities
Derivative payments
Derivative receipts
(2.4)
(17.1)
(51.6)
9.4
(2.4)
(1.2)
(51.7)
12.5
(7.1)
–
(130.6)
43.1
(115.1)
–
(403.9)
132.3
(127.0)
(18.3)
(637.8)
197.3
(429.6)
(410.6)
(2,054.2)
(3,899.1)
(6,793.5)
Group
Within 1 year
£m
1–2 years
£m
2–5 years
£m
Over 5 years
£m
2016
Total
£m
Borrowings (including interest)
(311.8)
(996.9)
(1,057.2)
(3,541.1)
(5,907.0)
Finance lease obligations
Other financial liabilities
Derivative payments
Derivative receipts
Company
Borrowings (including interest)
Other financial liabilities
Amounts owed to subsidiary undertakings
(2.4)
(17.4)
(92.8)
18.3
(2.4)
(1.2)
(43.5)
5.3
(7.2)
–
(115.7)
22.3
(112.6)
–
(375.9)
128.6
(124.6)
(18.6)
(627.9)
174.5
(406.1)
(1,038.7)
(1,157.8)
(3,901.0)
(6,503.6)
Within 1 year
£m
1–2 years
£m
2–5 years
£m
Over 5 years
£m
(4.7)
(0.8)
(553.1)
(558.6)
(4.7)
(242.3)
–
–
–
–
(4.7)
(242.3)
–
–
–
–
2017
Total
£m
(251.7)
(0.8)
(553.1)
(805.6)
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
28 Financial risk management (continued)
Company
Borrowings (including interest)
Other financial liabilities
Amounts owed to subsidiary undertakings
Within 1 year
£m
1–2 years
£m
2–5 years
£m
Over 5 years
£m
(0.2)
(0.3)
(684.6)
(685.1)
(0.2)
(10.6)
–
–
–
–
(0.2)
(10.6)
–
–
–
–
2016
Total
£m
(11.0)
(0.3)
(684.6)
(695.9)
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 financial 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 2017 is £4.1 million (2016: £4.5 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
2017
£m
23.1
3.3
26.4
Group
2016
£m
20.8
1.3
22.1
At 31 December 2017 trade receivables are shown net of provisions totalling £4.5 million (2016: £4.2 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
Authorised limit
£m
Group exposure
31 December 2017
£m
AA
A+
A+
AAA
AA-
125.0
100.0
100.0
150.0
75.0
106.2
45.7
31.2
18.1
15.4
216.6
228.3
95%
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28 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 2017 and 31 December 2016.
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. The determination of
the fair values of borrowings is defined in note 24.
Loans to joint ventures
Trade and other receivables
Cash and cash equivalents
Total cash and receivables
Other investments
Total available-for-sale investments
Derivative financial instruments
Total held for trading
Trade and other payables
Borrowings
Total loans and payables
Loans to joint ventures
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
2017
Loss to
other
comprehensive
income
£m
Profit/(loss) to
income
statement
£m
–
–
–
–
–
–
28.3
28.3
–
(6.3)
(6.3)
–
–
–
–
(0.2)
(0.2)
–
–
–
–
–
2016
Profit to
other
comprehensive
income
£m
Profit/(loss) to
income
statement
£m
–
–
–
–
–
–
(47.2)
(47.2)
–
30.9
30.9
–
–
–
–
0.4
0.4
–
–
–
–
–
Fair
value
£m
282.9
61.9
228.0
572.8
16.8
16.8
(347.5)
(347.5)
(18.3)
(5,428.6)
(5,446.9)
Fair
value
£m
232.2
47.4
254.7
534.3
15.5
15.5
(377.7)
(377.7)
(18.6)
(5,037.6)
(5,056.2)
Carrying
value
£m
282.9
61.9
228.0
572.8
16.8
16.8
(347.5)
(347.5)
(18.3)
(4,997.8)
(5,016.1)
Carrying
value
£m
232.2
47.4
254.7
534.3
15.5
15.5
(377.7)
(377.7)
(18.6)
(4,662.6)
(4,681.2)
142
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
28 Financial risk management (continued)
The table below presents the Group’s financial assets and liabilities recognised at fair value.
Level 1
£m
Level 2
£m
Level 3
£m
Assets
Derivative financial instruments:
—(cid:3)Fair value through profit or loss
Available-for-sale investments
Total assets
Liabilities
Convertible bonds:
–
15.3
15.3
0.3
–
0.3
—(cid:3)Designated as at fair value through profit or loss
(538.3)
–
Derivative financial instruments:
—(cid:3)Fair value through profit or loss
Total liabilities
–
(538.3)
(347.8)
(347.8)
–
1.5
1.5
–
–
–
Assets
Available-for-sale investments
Total assets
Liabilities
Convertible bonds:
—(cid:3)Designated as at fair value through profit or loss
Derivative financial instruments:
—(cid:3)Fair value through profit or loss
Total liabilities
Level 1
£m
Level 2
£m
Level 3
£m
15.5
15.5
(670.5)
–
(670.5)
–
–
–
(377.7)
(377.7)
–
–
–
–
–
2017
Total
£m
0.3
16.8
17.1
(538.3)
(347.8)
(886.1)
2016
Total
£m
15.5
15.5
(670.5)
(377.7)
(1,048.2)
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 significant 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 between Levels 1, 2 and 3 during the year.
Valuation techniques for Level 2 hierarchy financial assets and liabilities are presented in the accounting policies.
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28 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 compound 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 2017 the debt to assets 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 its interests in 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
included in the other information section.
Debt to assets ratio
Market value of investment and development property
Add market value of investment and development property classified as held for sale
Net external debt
Debt to assets ratio
Interest cover
Finance costs
Finance income
Underlying operating profit
Interest cover
Group
2017
£m
Group
2016
£m
10,222.7
9,984.7
306.5
–
10,529.2
9,984.7
(4,835.5)
(4,364.1)
45.9%
43.7%
Group
2017
£m
(219.9)
3.3
(216.6)
419.3
1.94x
Group
2016
£m
(208.5)
1.5
(207.0)
407.7
1.97x
29 Deferred tax
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 (2016: 0 per cent),
and for other UK assets and liabilities the relevant rate will be 19 per cent if the temporary difference is expected to be realised
before 1 April 2020 and 17 per cent if it is expected to be realised on or after 1 April 2020 (2016: 20 per cent before 1 April 2017,
19 per cent before 1 April 2020 and 17 per cent thereafter). For Spanish assets and liabilities the relevant tax rate will be 25 per cent
(2016: 25 per cent).
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
29 Deferred tax (continued)
Movements in the provision for deferred tax:
Group
Provided deferred tax provision/(asset):
At 1 January 2016
Recognised in the income statement
Recognised in other comprehensive income
At 31 December 2016
Acquisition of Madrid Xanadú (note 33)
Recognised in the income statement
Recognised in other comprehensive income
Foreign exchange movements
Disposal of subsidiaries (note 34)
At 31 December 2017
Investment and
development
property
£m
Other
investments
£m
Derivative
financial
instruments
£m
Other
temporary
differences
£m
–
–
–
–
84.5
24.8
–
1.8
(86.5)
24.6
18.9
(2.3)
(16.5)
0.1
–
–
(0.1)
–
–
–
(16.4)
16.4
–
–
–
–
–
–
–
–
(2.5)
2.4
–
(0.1)
(6.8)
(0.8)
–
(0.1)
6.9
(0.9)
Total
£m
–
16.5
(16.5)
–
77.7
24.0
(0.1)
1.7
(79.6)
23.7
The net deferred tax provision of £23.7 million arises in respect of the revaluation of development property at intu Costa del Sol,
partially offset by tax losses in the same company.
At 31 December 2017, the Group had unrecognised deferred tax assets calculated at a tax rate of 17 per cent (2016: 17 per cent)
of £43.1 million (2016: £39.7 million) for surplus UK revenue tax losses carried forward, £45.6 million (2016: £45.5 million) for
temporary differences on derivative financial instruments, £0.5 million (2016: £0.6 million) for temporary differences on capital
allowances and £5.8 million (2016: £3.4 million) for capital losses.
On its sale in 2016, the deferred tax provision in respect of the Group’s investment in Equity One was reduced to nil. The revaluation
of this investment was recognised in reserves and so the deferred tax movements related to it were also recognised in other
comprehensive income. With the provision reduced to nil, the deferred tax asset on derivative financial instruments and other
temporary differences could no longer be recognised, and £18.9 million was therefore released to the income statement.
In accordance with the requirements of IAS 12 Income Taxes, the deferred tax asset has not been recognised on the Group’s balance
sheet 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 no deferred tax asset or liability (2016: nil).
30 Share capital and share premium
Issued and fully paid:
At 1 January 2016: 1,344,661,827 ordinary shares of 50 pence each
Ordinary shares issued
At 31 December 2017 and 31 December 2016: 1,355,040,243 ordinary shares of 50 pence each
Share
capital
£m
672.3
5.2
677.5
Share
premium
£m
1,303.1
24.3
1,327.4
During 2016 the Company issued a total of 110,075 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 £0.1 million and share premium by £0.2 million.
On 22 November 2016, the Company issued 10,268,341 new ordinary shares of 50 pence each respectively to shareholders
who elected to receive their 2016 interim dividend 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 4 October and 10 October 2016 inclusive less the gross amount of dividend payable. As a result the Company’s share
capital increased by £5.1 million and share premium by £24.1 million.
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30 Share capital and share premium (continued)
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 22 February 2018 the Company had an unexpired authority to repurchase shares up to a maximum of 135,504,024 shares with
a nominal value of £67.8 million, and the Directors have an unexpired authority to allot up to a maximum of 451,680,081 shares
with a nominal value of £225.8 million.
Included within the issued share capital at 31 December 2017 are 11,633,680 ordinary shares (2016: 12,069,559) held by the
Trustee of the ESOP which is operated by the Company (see note 31). The nominal value of these shares at 31 December 2017
is £5.8 million (2016: £6.0 million).
31 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 40 and the Directors’ remuneration report on pages 78 to 93, including
joint ownership of shares in its role as Trustee of the Joint Share Ownership Plan. Dividends of £1.7 million (2016: £1.0 million)
in respect of these shares have been waived by agreement.
Group and Company
At 1 January
Acquisitions
Disposals
At 31 December
32 Other reserves
Group
At 1 January 2016
Revaluation of other investments (note 19)
Exchange differences
Tax relating to components of other comprehensive income (note 10)
Transferred to income statement on sale of other investments
At 31 December 2016
Revaluation of other investments (note 19)
Exchange differences
Tax relating to components of other comprehensive income (note 10)
At 31 December 2017
Shares
million
12.1
0.4
(0.9)
11.6
Capital
redemption
£m
61.4
–
–
–
–
61.4
–
–
–
61.4
2017
£m
40.8
1.3
(3.0)
39.1
Translation
reserve
£m
7.7
–
31.6
–
(13.4)
25.9
–
16.9
–
42.8
Shares
million
12.7
0.3
(0.9)
12.1
Other
£m
303.7
0.4
–
16.5
(63.6)
257.0
(0.2)
–
0.1
256.9
2016
£m
43.3
0.7
(3.2)
40.8
Total
£m
372.8
0.4
31.6
16.5
(77.0)
344.3
(0.2)
16.9
0.1
361.1
Other reserves in respect of the Company relate to the capital redemption reserve of £61.4 million (2016: £61.4 million).
146
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intu properties plc Annual report 2017
Notes to the financial statements continued
33 Business combinations
Accounting for acquisitions is a significant judgement as referenced in note 1. The Group individually assesses each acquisition to
determine if it should be accounted for as a business combination in accordance with IFRS 3 Business Combinations. In respect
of the below acquisitions, the Group has concluded the assets and liabilities acquired constitute a business. They include the
shopping centre asset itself along with the employees and processes that operate the centre on a day-to-day basis. These inputs
and processes in turn drive the operation of the centre and the related output for its beneficial owner. As a result, this acquisition
is to be accounted for as a business combination in accordance with IFRS 3.
Acquisition during 2017
On 10 March 2017 the Group acquired 100 per cent interests in three entities, which together own and manage Madrid Xanadú
shopping centre, for total cash consideration of €517.3 million (£453.9 million). The cash flow statement outflow of £446.7 million
reflects the £453.9 million less the unrestricted cash acquired of £7.2 million. Acquisition related costs of £1.3 million were incurred
and recognised in the income statement in exceptional administration expenses during the year.
The fair value of assets and liabilities acquired, at 100 per cent, are set out in the table below:
Assets
Investment and development property
Cash and cash equivalents (including restricted cash of £3.1 million)
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Deferred tax
Total liabilities
Net assets
Fair value of consideration paid
Goodwill on acquisition of business
Fair value
£m
461.4
10.3
0.1
471.8
(21.3)
(77.7)
(99.0)
372.8
453.9
81.1
The fair value of the consideration is greater than the fair value of the assets and liabilities acquired, resulting in goodwill of
£81.1 million being recognised on acquisition. The goodwill balance is primarily attributable to the recognition of a deferred tax
balance which is required to be recorded in accordance with IAS 12 Income Taxes but has not been taken into account as part
of the purchase price as it is not expected to be realised.
From the date of acquisition to the end of the year, the acquired subsidiaries and subsequent joint venture interest (see note 34)
contributed £13.2 million of revenue and £3.1 million of profit to the Group.
Had the entities been acquired on 1 January 2017, the Group would have reported revenue of £622.9 million and profit of £206.0
million for the year.
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33 Business combinations (continued)
Acquisition during 2016
On 22 June 2016 the Group acquired the remaining 50 per cent of intu Merry Hill for total consideration of £409.7 million. Following
this transaction intu Merry Hill has ceased to be accounted for as a joint venture and is now a subsidiary of the Group. The cash
flow statement outflow of £405.5 million reflects the £409.7 million less the unrestricted cash acquired of £4.2 million. Acquisition
related costs of £1.0 million were incurred and recognised in the income statement in exceptional administration expenses during
the year.
The fair value of assets and liabilities acquired, at 100 per cent, are set out in the table below:
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Assets
Investment and development property
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 business
Fair value
£m
889.3
4.2
3.9
897.4
(8.1)
(8.1)
889.3
854.7
34.6
The fair value of the assets and liabilities acquired exceeded the fair value of the consideration and as a result a gain of £34.6 million
was recognised in the income statement on acquisition. With a motivated seller, we were able as manager and owner of the other
50 per cent interest to conclude the transaction at a value lower than the independent market value.
The fair value of consideration paid included the cash consideration for the acquired 50 per cent interest of £409.7 million and the
fair value of intu’s existing interest of £445.0 million. There were no material differences between the carrying value and fair value
of intu’s existing joint venture interest at acquisition.
From 22 June 2016, the date on which the acquired entities joined the Group as subsidiaries, they contributed £28.5 million to
the revenue of the Group (acquired 50 per cent contribution: £14.2 million) and contributed £13.5 million of profit in the period.
Had the entities been acquired on 1 January 2016, the Group would have reported revenue of £650.0 million and profit of £170.9
million for the year.
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intu properties plc Annual report 2017
Notes to the financial statements continued
34 Disposal of subsidiaries
Disposals during 2017
On 31 July 2017 the Group sold 50 per cent of its interest in Xanadú Retail and Leisure S.L.U., a wholly owned subsidiary, to TH Real
Estate for total consideration of €131.7 million (£117.9 million) before expenses of £1.0 million. Xanadú Retail and Leisure S.L.U.
owns, through its wholly owned subsidiaries, Madrid Xanadú. Following this transaction Madrid Xanadú has ceased to be accounted
for as a subsidiary and is now a joint venture. Therefore the assets and liabilities of Madrid Xanadú are no longer recorded at 100 per
cent in the Group’s balance sheet but the remaining 50 per cent interest is included in investment in joint ventures at an initial value
of £117.1 million. As a result of this transaction the Group has recorded a loss on disposal of £1.0 million in the income statement.
The cash flow statement inflow of £104.1 million represents the net consideration received of £116.9 million net of unrestricted
cash in the business of £12.8 million.
Assessing control over joint arrangements is a significant judgement as referenced in note 1. Based on the terms set out in the
partnership agreement, the Group has classified its retained 50 per cent interest as a joint venture as key decisions require the
consent of both partners.
The assets and liabilities of the subsidiaries disposed of, at 100 per cent, are set out below:
Assets
Investment and development property
Goodwill
Cash and cash equivalents (including restricted cash of £3.2 million)
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Deferred tax
Derivative financial instruments
Borrowings
Total liabilities
Net assets
Net assets (at 50 per cent)
Fair value of consideration received
Loss on disposal of subsidiaries
£m
472.3
81.1
16.0
7.3
576.7
(28.4)
(79.6)
(1.6)
(231.4)
(341.0)
235.7
117.9
116.9
1.0
149
149
34 Disposal of subsidiaries (continued)
Disposals during 2016
On 15 December 2016 the Group sold 100 per cent of its interest in Intu Bromley Limited, a wholly owned subsidiary, to Alaska
Permanent Fund for initial consideration of £81.5 million before expenses of £1.3 million. Intu Bromley Limited holds a 64 per cent
interest in intu Bromley. It was anticipated the Group would receive a cash payment of £0.8 million following final agreement of
the completion balance sheet. As a result of this transaction the Group recorded a loss on disposal of £0.3 million in the income
statement. The cash flow statement inflow of £80.5 million reflects the net consideration of £81.0 million net of cash in the
business of £0.5 million.
The assets and liabilities of the subsidiary disposed of, at 100 per cent, are set out below:
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Investment and development property
Cash and cash equivalents
Trade and other receivables
Total assets
Liabilities
Trade and other payables
Borrowings
Total liabilities
Net assets
Fair value of consideration received
Loss on disposal of subsidiaries
£m
179.4
0.5
12.7
192.6
(7.3)
(104.0)
(111.3)
81.3
81.0
0.3
35 Assets classified as held for sale
In November the Group announced the formation of a joint venture with LaSalle Investment Management (acting on behalf of
Greater Manchester Pension Fund and West Yorkshire Pension Fund) for them to take ownership of 50 per cent of intu Chapelfield
for initial net proceeds of £148.0 million. This transaction completed on 31 January 2018 following the receipt of EU merger
approval. As a result, at 31 December 2017 in accordance with IFRS the Group has classified 100 per cent of intu Chapelfield
(which is part of the UK operating segment) and all its related assets and liabilities as held for sale. Assessing non-current assets
and disposal groups held for sale is a significant judgement as referenced in note 1.
The assets and liabilities below are presented at their carrying amount. There are no material differences between their carrying
amount and fair value less costs to sell.
Assets of disposal groups classified as held for sale
Investment and development property
Cash and cash equivalents
Trade and other receivables
Total
Liabilities of disposal groups classified as held for sale
Trade and other payables
Total
£m
302.0
0.5
6.6
309.1
(6.2)
(6.2)
150
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
36 Capital commitments
At 31 December 2017 the Board had approved £253.8 million (2016: £241.3 million) of future expenditure for the purchase,
construction, development and enhancement of investment property. Of this, £145.9 million (2016: £136.6 million) is contractually
committed. The majority of this is expected to be spent during 2018 and 2019.
37 Cash generated from operations
Profit/(loss) before tax, joint ventures and associates
Adjusted for:
Revaluation of investment and development property
Gain on acquisition of businesses
Loss on disposal of subsidiaries
Gain on sale of other investments
Depreciation
Share-based payments
Lease incentives and letting costs
(Reversal)/charge of impairment of investment in Group companies
Reversal of impairment of amounts owed by subsidiary undertakings
Net finance costs/(income)
Changes in working capital:
Change in trade and other receivables
Change in trade and other payables
Cash generated from operations
Notes
14
33
4
19
40
15
9
Group
2017
£m
190.4
(30.8)
–
1.8
–
2.9
2.3
Group
2016
£m
154.6
78.0
(34.6)
0.3
(74.1)
2.2
1.9
(4.1)
(16.7)
–
–
–
–
218.2
242.2
(0.6)
(14.5)
365.6
(1.0)
3.1
355.9
Company
2017
£m
36.0
Company
2016
£m
(66.1)
–
–
–
–
2.5
2.3
–
(67.0)
(24.4)
36.4
151.4
(135.0)
2.2
–
–
–
–
1.6
1.9
–
70.1
–
(24.5)
187.6
385.4
556.0
151
151
38 Subsidiaries, joint ventures and associates
The table below lists all of the Company’s subsidiaries, joint ventures and associates. The country of incorporation and registration
is England and Wales and the registered office is 40 Broadway, London SW1H 0BT except as indicated. The Company’s interest
in each subsidiary is 100 per cent, except as indicated. The Company’s interest in each joint venture is 50 per cent, except
as indicated.
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Name of entity
Class of capital
Name of entity
Subsidiaries based at 40 Broadway, London, SW1H 0BT
Intu Cardiff Holdco Limited (dormant)
Barton Square Holdco Limited (holding company)
Barton Square Limited (property)
Braehead Glasgow Limited (property)
Braehead Leisure Partnership (property)
Braehead Park Estates Limited (property)
Braehead Park Investments Limited (property)
Ordinary shares
Ordinary shares
‘A’ Ordinary
shares
‘B’ Ordinary
shares
n/a
Ordinary shares
Ordinary shares
Broadmarsh Retail (Nominee No.1) Limited (dormant)
Ordinary shares
Broadmarsh Retail (Nominee No.2) Limited (dormant)
Ordinary shares
Broadmarsh Retail (Nominee No.3) Limited (dormant)
Ordinary shares
Broadmarsh Retail (Nominee No.4) Limited (dormant)
Ordinary shares
Broadmarsh Retail General Partner Limited (general partner)
‘A’ Ordinary
shares
‘B’ Ordinary
shares
Broadway Construction & Development Limited (dormant) Ordinary shares
Broadway Retail Leisure Limited (management of
leisure facilities)
Cable Plaza Limited (limited partner)
Capital Shopping Centres Limited (dormant)3
Castle & Pedmore Houses Limited (holding company)
Chapelfield GP Limited (general partner)
Chapelfield LP Limited (limited partner)
Chapelfield Nominee Limited (dormant)
Chapelfield Property Management Limited
(property management)
Conduit Insurance Holdings Limited (holding company)3
Cribbs Mall Nominee (2) Limited (dormant)
Crossmane Limited (limited partner)
CSC Uxbridge Limited (dormant)
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Derby Business Management Limited (business manager) Ordinary shares
Derby Investments General Partner Limited (general partner) Ordinary shares
Derby Investments Limited Partnership (limited partner)
n/a
Derby Investments Trustee Limited (dormant)
Fortheath (No.3) Limited (dormant)
Intu (SGS) Finco Limited (finance)
Intu (SGS) Holdco Limited (holding company)
Intu (SGS) Limited (holding company)
Intu (SGS) Topco Limited (holding company)3
Intu 2027 Limited (dormant)
Intu Braehead Leisure Limited (holding company)
Intu Braehead Limited (holding company)
Intu Braehead Property Management Limited
(property management)
Intu Broadmarsh Limited (dormant)3
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Intu Cardiff Limited (dormant)
Intu Centaurus Retail Limited (holding company)
Intu Chapelfield Limited (dormant)
Intu Chapelfield Residential Limited (property)
Intu Debenture plc (finance, holding company) 3
Intu Eldon Square Limited (property)
Intu Energy Limited (holding company)
Intu Experiences Limited (mall commercialisation)
Intu Finance MH Limited (finance)
Intu FM Limited (dormant)
Intu India (Direct) Limited (investment holdings)
Intu India (Portfolio) Limited (investments holdings)
Intu Investments Limited (property)
Intu IP Limited (intellectual property)
Intu Lakeside Hotel Limited (dormant)
Intu Lakeside Limited (property)
Intu Metrocentre Parent Company Limited
(dormant)
Intu Metrocentre Property Management Limited
(property management)
Intu Metrocentre Topco Limited (holding company)3
Intu MH Acquisitions Limited (limited partner)
Intu MH Group Limited (holding company)
Intu MH Holdings Limited (holding company)
Intu MH Investments Limited (limited partner)
Intu MH Leaseholds Limited (holding company)
Intu MH Parking Limited (limited partner)
Intu MH Phase 1 Limited (limited partner)
Intu MH Properties Limited (holding company)
Intu MH Waterfront Limited (limited partner)
Intu MHDS Holdco Limited (holding company)3
Intu Milton Keynes Limited (property)
Class of capital
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Preference
shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Intu Lakeside Property Management Limited
(property management)
Intu Management Services Limited (management services)3 Ordinary shares
Ordinary shares
Intu Metrocentre Limited (limited partner)
Ordinary shares
Intu Nottingham Investments Limited (limited partner)
Ordinary shares
Intu Payments Limited (Group payment services)
Intu Potteries Limited (limited partner)
Ordinary shares
Ordinary shares
Intu Properties Investments Limited (limited partner)
Ordinary shares
Intu Property Management Limited (property management) Ordinary shares
Intu Property Services Limited (dormant)
Ordinary shares
Intu Retail Services Limited (facilities management)
Ordinary shares
Intu RS Limited (facilities management)
Ordinary shares
‘A’ shares
Intu MH Participations Limited (holding company)
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
38 Subsidiaries, joint ventures and associates (continued)
Name of entity
Class of capital
Name of entity
Class of capital
Intu Shelfco 1 Limited (dormant)
Ordinary shares
MH (No.2) Limited Partnership (property)
n/a
Intu Shelfco 3 plc (dormant)
Intu Shopping Centres plc (holding company)3
Intu Spain Limited (holding company)
Ordinary shares
MH (No.2) Nominee A Limited (dormant)
Ordinary shares
MH (No.2) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
Ordinary shares
MH (No.3) General Partner Limited (general partner)
Ordinary shares
Intu The Hayes Limited (limited partner)
Ordinary shares
MH (No.3) Limited Partnership (property)
n/a
Intu Trafford Centre Group (UK) Limited (holding company) Ordinary shares
MH (No.3) Nominee A Limited (dormant)
Intu Trafford Centre Limited (development management) Ordinary shares
MH (No.3) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
Intu Ventures Limited (dormant)
Intu Victoria Centre Limited (dormant)3
Intu Watford Limited (property)
Intu Watford Property Management Limited
(property management)
IntuDigital Holdco Limited (holding company)
IntuDigital Limited (digital services)
Kindmotive Limited (dormant)
Lakeside 1988 Limited (dormant)
Liberty Capital PLC (dormant)3
Liberty International Construction and Development
Limited (dormant)3
Liberty International Financial Services Limited
(financial services)
Liberty International Group Treasury Limited
(treasury management)
Liberty International Holdings Limited (holding company)1 Ordinary shares
Ordinary shares
Manchester Nominee (2) Limited (dormant)
Ordinary shares
Merry Hill Management Services Limited (dormant)
Ordinary shares
Merry Hill Services Limited (dormant)
Merry Hill Trading Limited (trading)
Metrocentre (GP) Limited (general partner)
Metrocentre (Holdco) Limited (dormant)
Metrocentre (Nominee No.1) Limited (dormant)
Metrocentre (Nominee No.2) Limited (dormant)
Metrocentre (Subco) Limited (dormant)
Metrocentre Lancaster LLP (property)4
Metrocentre Lancaster No.1 Limited (holding company)
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
n/a
Ordinary shares
MH (No.4) General Partner Limited (general partner)
Ordinary shares
Ordinary shares
MH (No.4) Limited Partnership (property)
n/a
Ordinary shares
MH (No.4) Nominee A Limited (dormant)
Ordinary shares
MH (No.4) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
‘A’ Ordinary
shares
‘B’ Ordinary
shares
Ordinary shares
Cumulative
redeemable
preference
shares
Ordinary shares
‘A’ Ordinary
shares
‘B’ Redeemable
preference
shares
‘C’ Preference
shares
Ordinary shares
Ordinary shares
MH (No.5) General Partner Limited (general partner)
Ordinary shares
MH (No.5) Limited Partnership (property)
n/a
MH (No.5) Nominee A Limited (dormant)
MH (No.5) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
MH (No.6) General Partner Limited (general partner)
Ordinary shares
MH (No.6) Limited Partnership (property)
n/a
MH (No.6) Nominee A Limited (dormant)
MH (No.6) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
MH (No.7) General Partner Limited (general partner)
Ordinary shares
MH (No.7) Limited Partnership (property)
n/a
MH (No.7) Nominee A Limited (dormant)
MH (No.7) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
MH (No.8) General Partner Limited (general partner)
Ordinary shares
MH (No.8) Limited Partnership (property)
n/a
MH (No.8) Nominee A Limited (dormant)
MH (No.8) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
Middleford Property Investments Limited (dormant)
Ordinary shares
Potteries (GP) Limited (general partner)
Ordinary shares
Potteries (Nominee No.1) Limited (dormant)
Potteries (Nominee No.2) Limited (dormant)
Runic Nominees Limited (dormant)
Sandal Investments Limited (dormant)
Staffordshire Property Management Limited (property)
TAI Investments Limited (holding company)2
TAI Nominees Limited (dormant)
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
‘B’ Deferred
shares
Ordinary shares
Ordinary shares
The Broadmarsh Retail Limited Partnership (property)
n/a
The Bullfinch Company Limited (dormant)
Ordinary shares
The Chapelfield Partnership (property)
The Metrocentre Partnership (property)4
The Potteries Shopping Centre Limited Partnership
(property)
n/a
n/a
n/a
Ordinary shares
The Trafford Centre Holdings Limited (holding company) Ordinary shares
Metrocentre Lancaster No.2 Limited (holding company)
Ordinary shares
The Trafford Centre Investments Limited (holding company) Ordinary shares
MH (No.1) General Partner Limited (general partner)
Ordinary shares
The Trafford Centre Limited (property)
MH (No.1) Limited Partnership (property)
n/a
MH (No.1) Nominee A Limited (dormant)
MH (No.1) Nominee B Limited (dormant)
Ordinary shares
Ordinary shares
‘A’ Preference
shares
‘B’ Preference
shares
Ordinary shares
MH (No.2) General Partner Limited (general partner)
Ordinary shares
The Victoria Centre Partnership (property)
n/a
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Units
38 Subsidiaries, joint ventures and associates (continued)
Name of entity
Class of capital
Name of entity
The Wilmslow (No.3) Limited Partnership (property)
n/a
TransAtlantic Holdings Limited (dormant)
Transol Investments Limited (dormant)
VCP (GP) Limited (general partner)
VCP Nominees No.1 Limited (dormant)
VCP Nominees No.2 Limited (dormant)
Westgate Oxford Investments Limited (dormant)
Whitesun Limited (property)
Wilmslow (No.3) (Nominee A) Limited (dormant)
Wilmslow (No.3) (Nominee B) Limited (dormant)
Wilmslow (No.3) General Partner Limited (general partner)
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
‘A’ Ordinary
shares
‘B’ Ordinary
shares
WRP Management Limited (property)
Ordinary shares
Subsidiaries based at 1 Waverly Place, Union Street, St Helier,
Jersey, JE1 1SG
Belside Limited (property)
Curley Limited (property)
Steventon Limited (property)
Ordinary shares
Ordinary shares
Ordinary shares
Subsidiaries based at 22 Grenville Street, St Helier, Jersey, JR4 8PX
CSC Capital (Jersey) Limited (dormant)3
Intu (Jersey) 2 Limited (finance)3
Intu (Jersey) Limited (finance)3
Intu Capital (Jersey) Limited (dormant)3
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Redeemable
preference
shares
Intu Derby 2 Limited (holding company)
Ordinary shares
Intu Derby Jersey Unit Trust (limited partner)
Units
Intu Derby Limited (holding company)
Intu Merry Hill 2 Limited (holding company)
Intu Merry Hill Limited (holding company)
Intu MH (No.1) Jersey Unit Trust (limited partner)
Intu MH (No.1) Sub-Trust (limited partner)
Intu MH (No.2) Jersey Unit Trust (limited partner)
Intu MH (No.2) Sub-Trust (limited partner)
Intu MH (No.3) Jersey Unit Trust (limited partner)
Intu MH (No.3) Sub-Trust (limited partner)
Intu MH (No.4) Jersey Unit Trust (limited partner)
Intu MH (No.4) Sub-Trust (limited partner)
Intu MH (No.5) Jersey Unit Trust (limited partner)
Intu MH (No.5) Sub-Trust (limited partner)
Intu MH (No.6) Jersey Unit Trust (limited partner)
Intu MH (No.6) Sub-Trust (limited partner)
Intu MH (No.7) Jersey Unit Trust (limited partner)
Intu MH (No.7) Sub-Trust (limited partner)
Intu MH (No.8) Jersey Unit Trust (limited partner)
Intu Sprucefield 2 Limited (holding company)
Intu Sprucefield Limited (holding company)
Intu Uxbridge Holdco Limited (holding company)
Ordinary shares
Ordinary shares
Ordinary shares
Units
Units
Units
Units
Units
Units
Units
Units
Units
Units
Units
Units
Units
Units
Units
Midlands Shopping Centre Jersey Unit Trust (No.1)
(limited partner)
Sprucefield No.1 Nominee Limited (dormant)
Ordinary shares
Sprucefield No.2 General Partner Limited (general partner) Ordinary shares
Sprucefield No.2 Limited Partnership (property)
n/a
Sprucefield No.2 Nominee Limited (dormant)
Ordinary shares
Sprucefield Unit Trust (limited partner)
W (No.3) GP (Nominee A) Limited (dormant)
W (No.3) GP (Nominee B) Limited (dormant)
Units
Ordinary shares
Ordinary shares
Subsidiaries based at 58 Rue Charles Martel, L-213, Luxembourg
ICS Holding S.à r.l. (holding company)
ICS InvestCo S.à r.l. (holding company)
ICS JV S.à r.l. (holding company)
Ordinary shares
Ordinary shares
Ordinary shares
Intu Eurofund Developments S.à r.l. (holding company)
Ordinary shares
Intu Management Spain Holding S.à r.l. (holding company) Ordinary shares
Subsidiaries based at 7 Rue Robert Stumper, L-2557, Luxembourg
Intu Holding S.à r.l. (holding company)
Intu Xanadú Holding S.à r.l. (holding company)
Ordinary shares
Ordinary shares
Subsidiaries based at Ayala 66, 28001, Madrid, Spain
Intu Costa del Sol Resort Holdco S.A. (holding company)
Ordinary shares
Intu Costa del Sol Resort S.L. (property)
Intu Management Spain S.L. (property management and
management services)
Madrid Xanadú Management S.A. (management)
Rosholt Invest S.L. (property)
Other subsidiaries
Intu Trafford Centre Group Limited (holding company)3
(Cains Fiduciary, Fort Anne, Douglas, Isle of Man, IM1 1LB)
Libint (Proprietary) Limited (local administration services)
(Liberty Life Centre, 1 Ameshoff Street, Braamfontein,
Johannesburg 2007, South Africa)3
Libtai Holdings (Jersey) Limited (holding company)
(PO Box 761 Ordnance House 31 Pier Road, St Helier,
Jersey, JE4 8ZZ)3
Merry Hill Finance Designated Activity Company (finance)
(6th Floor, Pinnacle 2, Eastpoint Business Park, Dublin,
Republic of Ireland) (in liquidation)
Ocio y Nieve S.L. (Paseo de Eduardo Dato 18, 28010,
Madrid, Spain)
Nailsfield Limited (holding company) (IFS Court,
Twentyeight, Cybercity, Ebene, Mauritius)3
The Trafford Centre Finance Limited (finance)
(89 Nexus Way, Canama Bay, KY1-9007, Cayman Islands)
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Wattenberg Invest S.L. (property) (Calle Principal, Vergara
131, 28002, Madrid, Spain)
Ordinary shares
Joint ventures based at 40 Broadway, London, SW1H 0BT
Centaurus Retail LLP (property)
Cribbs Causeway JV Limited (property management)
n/a
‘A’ Ordinary
shares
‘B’ Ordinary
shares
‘A’ Ordinary
shares
‘B’ Ordinary
shares
Ordinary shares
Ordinary shares
Ordinary shares
Manchester JV Limited (property management)
154
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intu properties plc Annual report 2017
Notes to the financial statements continued
38 Subsidiaries, joint ventures and associates (continued)
Name of entity
Class of capital
Name of entity
Class of capital
Joint ventures based at 100 Victoria Street, London, SW1E 5JL
St. David’s (Cardiff Residential) Limited (property)
Ordinary shares
St. David’s (General Partner) Limited (general partner)
St. David’s (No.1) Limited (dormant)
St. David’s (No.2) Limited (dormant)
‘A’ Ordinary
shares
‘B’ Ordinary
shares
Ordinary shares
Ordinary shares
St. David’s Limited Partnership (property)
n/a
Joint ventures based at Ayala 66, 28001, Madrid, Spain
Intu Eurofund Mallorca S.L. (property development)
Ordinary shares
Intu Eurofund Valencia S.L. (property development)
Ordinary shares
Intu Eurofund Vigo S.L. (property development)
Madrid Xanadú 2003 S.L. (property)
Xanadú Retail and Leisure S.L (holding company)
Ordinary shares
Ordinary shares
Ordinary shares
Joint ventures based at Paseo de Eduardo Dato 18,
Planta Semisotano, 28010 Madrid
Asturias Propco Numero Uno S.L. (property)
Ordinary shares
Asturias Retail and Leisure SOCIMI S.A. (holding company) Ordinary shares
Zaragoza Properties SOCIMI S.A. (holding company)
Ordinary shares
Joint ventures based at 7 Rue Robert Stumper, L-2557, Luxembourg
Intu Zaragoza Holding S.à r.l. (holding company)
Intu Zaragoza S.à r.l. (holding company)
Parque Principado S.à r.l. (holding company)
Ordinary shares
Ordinary shares
‘A’ shares
‘B’ shares
Joint ventures based at Atrium building, 8th Floor, Strawinskylaan
3127, 1077, ZX, Amsterdam, Netherlands
Intu Eurofund Investments Mallorca B.V. (holding company) Ordinary shares
Intu Eurofund Investments Valencia B.V. (holding company) Ordinary shares
Intu Eurofund Investments Vigo B.V. (holding company)
Ordinary shares
Other joint ventures
Intu Eurofund Developments S.à r.l. (holding company)
(58 Rue Charles Martel, L-2134, Luxembourg)
Metropolitan Retail JV (Jersey) Unit Trust (property) 7
(28 – 30 The Parade, St Helier, Jersey, JE1 1EQ)
‘A’ shares
‘B’ shares
‘A’ units
‘B’ units
Puerto Venecia Investments SOCIMI S.A. (property)
(Paseo de Eduardo Dato 18, 28010, Madrid, Spain)
Snowzone S.L. (Paseo de Eduardo Dato 18, 28010,
Madrid, Spain) (leisure)
Ordinary shares
Ordinary shares
St. David’s Unit Trust (limited partner) (47 Esplanade,
St. Helier, Jersey JE1 0BD)
Units
Associates based at 105-106 Provogue House, Off New Link Road,
Andheri (West) Mumbai, 400 053 India
Empire Mall Private Limited (property)5
Prozone Intu Properties Limited (property)6
Ordinary shares
Ordinary shares
1 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.
2 95.4 per cent is held by Libtai Holdings (Jersey) Limited and 4.6 per cent is held by intu properties plc.
3 Related undertaking held directly by intu properties plc.
4 Group’s interest is 60 per cent.
5 Group’s interest is 26.8 per cent.
6 Group’s interest is 32.4 per cent.
7 Group’s interest is 20 per cent. This is classified as a joint venture due to an equal voting interest.
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38 Subsidiaries, joint ventures and associates (continued)
Other entities
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.
Non-controlling interests
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. £53.9 million of the non-controlling interest shown in the balance sheet at 31 December
2017 (2016: £67.4 million) and £13.5 million of the non-controlling interest share of loss shown in the income statement for
the year ended 31 December 2017 (2016: share of loss £11.0 million) relates to GIC Real Estate’s interest. Set out below is the
summarised financial information of The Metrocentre Partnership at 100 per cent, as consolidated:
Summarised income statement
Revenue
Loss for the year
Summarised balance sheet
Investment and development property
Borrowings
Other net liabilities
Net liabilities
2017
£m
68.5
(33.7)
908.3
(938.1)
(12.5)
(42.3)
2016
£m
66.8
(27.7)
924.4
(922.5)
(10.5)
(8.6)
During the year the Group acquired the 49 per cent non-controlling interest in Intu Retail Services Limited from Bilfinger Europa
Facilities Management Limited for consideration of £1. Prior to the transaction, no amount was included within the non-controlling
interest shown in the balance sheet (2016: nil) and nil of the non-controlling interest share of loss shown in the income statement
for the year ended 31 December 2017 (2016: nil) related to their interest.
39 Related party transactions
Key management1 compensation is analysed below:
Salaries and short-term employee benefits
Pensions and other post-employment benefits
Share-based payments
2017
£m
5.4
0.7
2.0
8.1
2016
£m
4.8
0.5
3.7
9.0
1 Key management comprises the Directors of intu properties plc and the Executive Committee who have been designated as persons discharging managerial responsibility
(PDMR).
During the year the Group’s joint ventures in Puerto Venecia, Zaragoza and intu Asturias sold shares in subsidiaries, previously
wholly owned by the respective joint ventures, listed on the Spanish MaB to PDMR’s of the Group. The total value of the shares sold
at fair value on the date of sale is €1.0 million and €0.9 million, representing 3 per cent and 2 per cent of outstanding share capital
respectively. The sale of shares in these entities was required to comply with Spanish MaB free float listing requirements. The Group
provided an interest-free loan to PDMR’s to enable them to purchase the shares. The loans are treated as a taxable benefit which
accordingly is included in the above table.
As John Whittaker, Deputy Chairman and Non-Executive Director of intu properties plc, is the Chairman of the Peel Group (Peel),
members of Peel are considered to be related parties. Total transactions between the Group and members of Peel are shown below:
Income
Expenditure
2017
£m
1.3
(0.6)
2016
£m
1.3
(0.9)
156
156
intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
39 Related party transactions (continued)
Income predominantly relates to leases of office space and contracts to provide advertising services. Expenditure predominantly
relates to costs incurred under a management services agreement, travel costs and the supply of utilities. All contracts are on an
arm’s length basis at commercial rates.
Balances outstanding between the Group and members of Peel at 31 December 2017 and 31 December 2016 are shown below:
Net investment in finance lease
Amounts owed by members of Peel
2017
£m
1.6
1.0
2016
£m
2.0
0.2
Under the terms of the Group’s acquisition of intu Trafford Centre from Peel in 2011, Peel have provided a guarantee in respect of
Section 106 planning obligation liabilities at Barton Square which at 31 December 2017 totalled £12.4 million (2016: £11.7 million).
During 2016, the Group agreed terms on three advertising services agreements related to digital screens with Peel Advertising
Limited (a member of Peel) under which Peel will procure advertising on behalf of the Group. The minimum fixed payments in
these agreements have been classified as a finance lease (see net investment in finance lease above).
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 expense
Interest income
Additions to investment in subsidiaries
2017
£m
(24.4)
12.2
4.4
2016
£m
(10.9)
14.6
24.4
The Company has provided Intu (Jersey) Limited a guarantee over obligations in relation to the 2.5 per cent convertible bonds
and Intu (Jersey) 2 Limited over obligations in relation to the 2.875 per cent convertible bonds (see note 26).
Significant balances outstanding between the Company and its subsidiaries are shown within notes 15, 20 and 23.
40 Share-based payments
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.
In 2017 the total share-based payment charge was £2.3 million (2016: £1.9 million). Details of share options outstanding under each
of the Group’s schemes is set out below:
Share Option Scheme1
Performance Share Plan1
Bonus Share Scheme
Share incentive plan3
Save as you earn scheme
Note
Outstanding
1 January 2017
Granted
during the year
Exercised
during the year
Expired/forfeited
during the year
Outstanding
31 December 2017
Exercisable
31 December 2017
A
B
C
D
E
9,144,212
2,040,000
5,419,795
1,743,849
1,020,021
313,041
174,849
729,600
178,661
72,181
–
(228,778)2
(404,982)2
(107,243)2
–
(168,405)
11,015,807
5,446,712
(886,932)
6,047,934
(1,541)
1,343,098
(23,926)
(39,512)
360,533
207,518
n/a
n/a
n/a
–
1
Includes share interests held jointly under the Joint Share Ownership Plan. See F below for further details.
2 Shares ordinarily exercised immediately on vested date.
3 Relates to non-vested SIP bonus shares granted.
In respect of the Share Option Scheme, the weighted average exercise prices of the outstanding options and outstanding options
exercisable at 31 December 2017 are 293 pence and 274 pence respectively (2016: 295 pence and 267 pence respectively).
No options were exercised during the year.
In respect of the save as you earn scheme, the weighted average exercise prices of the outstanding options and outstanding options
exercisable at 31 December 2017 are 260 pence and nil respectively (2016: 278 pence and nil respectively).
157
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40 Share-based payments (continued)
During the year the Group incurred a £49.4 million share related charge in relation to its Spanish development partner Eurofund’s
future interests in the share capital of the intu Costa del Sol development company. The positive impact of this share related charge
on equity attributable to owners of intu properties plc, a credit to retained earnings of £49.4 million, is expected to reverse once
these arrangements are concluded, with the Eurofund interest to be included in non-controlling interests which will result in a
reduction of net assets.
A Share Option Scheme
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.
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.
B Performance Share Plan (PSP)
The Company operates a PSP for eligible employees at the discretion of the Remuneration Committee.
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 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.
C Bonus Share Scheme (Bonus Scheme)
Under the Company’s Bonus Scheme, deferred shares may be awarded as part of any bonus.
Such awards comprise ‘Restricted’ shares and ‘Additional’ shares. Where awarded, Additional shares would be equal to 50 per cent
of the Restricted shares and SIP shares (see below) combined. No Additional shares were outstanding at 1 January 2016 and no
awards have been made in 2016 or 2017. 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.
D Share incentive plan (SIP)
The Company operates a SIP for all eligible employees, who may receive up to £3,600 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.
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 £150 a month. 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.
E Save as you earn scheme (SAYE)
The Company operates a SAYE for all eligible employees under which UK employees can enter into contracts to save currently up
to a maximum of £500 per month with a bank or building society for a period of three or five years and use the proceeds from their
savings accounts to purchase shares in the Company on the exercise of their options. The option price is usually the average mid-
market closing share price over the three consecutive dealing days preceding the invitation date, discounted by up to 20 per cent.
Options may be exercised typically within six months following the end of the savings period.
158
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Notes to the financial statements continued
40 Share-based payment (continued)
F Joint Share Ownership Plan (JSOP)
Eligible employees were invited to participate in the 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.
41 Pensions
The Group operates defined contribution group pension plans for its staff. All contributions are invested in funds administered
outside of the Group.
The pension charge for the Group’s contributions to these arrangements is the amount paid which totalled £4.4 million for the year
ended 31 December 2017 (2016: £3.6 million).
42 Events after the reporting date
In November 2017 the Group announced the formation of a joint venture with LaSalle Investment Management (acting on
behalf of Greater Manchester Pension Fund and West Yorkshire Pension Fund) for them to take ownership of 50 per cent of
intu Chapelfield for initial net proceeds of £148.0 million. This transaction completed on 31 January 2018 following the receipt
of EU merger approval.
43 Directors’ interests and emoluments
(a) Shares in the Company
The number of ordinary shares of the Company in which the Directors were beneficially interested were:
Chairman:
John Strachan
Patrick Burgess1
Deputy Chairman:
John Whittaker2
Executive:
David Fischel
Matthew Roberts
Non-Executive:
Adèle Anderson
Richard Gordon
Rakhi Goss-Custard
Andrew Huntley1
Louise Patten
Andrew Strang
2017
2016
30,000
n/a
30,000
37,627
368,635,097
363,850,297
1,155,030
1,048,884
341,992
259,487
32,504
32,504
7,005,211
7,005,211
7,383
n/a
12,857
–
7,383
7,714
12,857
–
1 Patrick Burgess and Andrew Huntley each stepped down from the Board following the 3 May 2017 annual general meeting.
2 Total beneficial interest includes shares held by subsidiaries of the Peel Group of which John Whittaker is the Chairman.
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.
43 Directors’ interests and emoluments (continued)
Awards to executive directors under the scheme since January 2013 are as follows:
159
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David Fischel
Matthew Roberts
Award date
29/04/2014
11/03/2015
11/03/2015
07/03/2016
07/03/2016
07/03/2017
07/03/2017
29/04/2014
11/03/2015
11/03/2015
07/03/2016
07/03/2016
07/03/2017
07/03/2017
Market
price at
award
(pence)
Original
vesting
date
Market
price at
vesting
(pence)
Number of
shares at
31 December
2016
Number of
shares
awarded
during 2017
Number of
shares
vested
during 2017
Number of
shares at
31 December
2017
292
349
349
300
300
285
285
292
349
349
300
300
285
285
29/04/2017
11/03/2017
11/03/2018
07/03/2018
07/03/2019
07/03/2019
07/03/2020
29/04/2017
11/03/2017
11/03/2018
07/03/2018
07/03/2019
07/03/2019
07/03/2020
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29,627
30,478
29,446
53,863
52,663
–
–
23,530
24,154
23,122
42,471
41,271
4,135*
2,643*
(33,762)
(33,121)
–
–
–
58,905
57,642
3,284*
2,094*
–
–
–
–
–
–
–
–
(26,814)
(26,248)
–
–
–
–
–
–
–
46,982
45,719
–
–
29,446
53,863
52,663
58,905
57,642
–
–
23,122
42,471
41,271
46,982
45,719
* Dividend received for their two and three year holding period.
Details of Restricted and Additional shares awarded in respect of the year ended 31 December 2017 are given in the Directors’
remuneration report on pages 78 to 93.
(b) Share options in the Company
Executive directors’ interests in share options, the PSP and the SIP are given in the Directors’ remuneration report on pages 78
to 93.
(c) Other disclosures
No Director had any dealings in the shares of any Group company between 31 December 2017 and 22 February 2018, 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 financial statements, 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 2017.
(d) Emoluments
The details of individual Directors’ remuneration and pension benefits, as set out in the tables contained in the Directors’
remuneration report on pages 78 to 93, form part of these financial statements.
160
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Investment and development property (unaudited)
1 Property data
At 31 December 2017
Subsidiaries
intu Trafford Centre
intu Lakeside
intu Merry Hill
intu Metrocentre
intu Braehead
intu Derby
Manchester Arndale
intu Victoria Centre
intu Watford
intu Eldon Square
intu Milton Keynes
Cribbs Causeway
OtherC
Investment and development property
excluding Group’s share of joint ventures
Joint ventures
St David’s, Cardiff
Madrid Xanadú
Puerto Venecia, Zaragoza
intu Asturias
OtherD
Investment and development property
including Group’s share of joint ventures
At 31 December 2016
including Group’s share of joint ventures
Notes
A Revaluation surplus assessed from date of acquisition.
B Calculated in local currency.
Market value
£m
Revaluation
surplus/deficit
Net initial
yield (EPRA)
‘Topped-up’ NIY
(EPRA)
Nominal
equivalent yield
Occupancy
2,324.0
1,416.5
931.1
929.0
533.1
458.0
456.4
355.5
336.0
322.7
285.0
240.0
621.1
9,208.4
345.8
235.2
230.8
140.8
61.7
10,222.7
9,984.7
–
+2%
-1%
-3%
-2%
+1%
–
-1%
-3%
+1%
+1%
–
-2%
+1%A/B
+4%B
+11%B
3.7%
3.3%
3.8%
4.7%
5.1%
6.0%
4.1%
4.7%
4.0%
4.9%
4.4%
4.9%
4.2%
4.2%
4.5%
4.6%
3.7%
3.6%
4.0%
5.2%
5.2%
5.8%
4.3%
4.9%
4.1%
4.9%
4.6%
4.7%
4.5%
4.5%
4.7%
4.7%
4.3%
4.5%
5.0%
5.3%
6.1%
6.2%
5.1%
5.7%
5.1%
5.0%
4.9%
5.2%
4.8%
5.4%
5.7%
5.2%
4.20%E
4.36% E
5.03% E
4.27%
4.45%
5.02%
98%
92%
95%
94%
96%
97%
97%
98%
95%
99%
100%
98%
94%
98%
98%
96%
96%
96%
C
D
Includes the Group’s interests in intu Potteries, intu Broadmarsh, Soar at intu Braehead, development land in Spain, Charter Place, Watford and Sprucefield, Northern Ireland.
Includes the Group’s interest in intu Uxbridge.
E Weighted average yields exclude developments.
Passing rent
Annual property income
ERV
Weighted average unexpired lease term
Please refer to the glossary for definitions of terms.
31 December
2017
£m
31 December
2016
£m
426.9
462.2
544.4
427.3
467.4
542.5
7.5 years
7.7 years
161
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2 Analysis of capital return in the year – including Group’s share of joint ventures
Market value
Revaluation surplus/(deficit) (cid:3)
Like-for-like property
Acquisition and part disposal: Madrid Xanadú
Classified as held for sale: intu Chapelfield
Spain developments
Other
2017
£m
9,446.8
235.2
–
212.8
327.9
2016
£m
9,360.1
–
297.7
76.7
250.2
Total investment and development property
10,222.7
9,984.7
3 Additional property information
2017
£m
(37.8)
1.7
9.6
74.5
(0.7)
47.3
2017
%
(0.4)
0.7
3.3
53.8
(0.2)
0.5
Ownership
Note
Form of(cid:3)(cid:3)
ownershipE
Gross area million(cid:3)(cid:3)
sq ftF
Year
opened
Acquisition(cid:3)(cid:3)
dateG
At 31 December 2017
intu Trafford Centre
intu Lakeside
intu Merry Hill
intu Metrocentre
intu Braehead
intu Derby
Manchester Arndale
intu Victoria Centre
intu Watford
intu Eldon Square
intu Milton Keynes
Cribbs Causeway
St David’s, Cardiff
Madrid Xanadú
Puerto Venecia, Zaragoza
intu Asturias
Other
Investment and development property
including Group’s share of joint ventures
At 31 December 2016 including Group’s share
of joint ventures
Notes
100%
100%
100%
90%
100%
100%
48%
100%
93%
60%
100%
33%
50%
50%
50%
50%
FH(cid:3)(cid:3)
FH(cid:3)
FH(cid:3)
LH(cid:3)
FH(cid:3)
FH/LH(cid:3)
LH(cid:3)
FH(cid:3)
LH(cid:3)(cid:3)
FH/LH(cid:3)
FH(cid:3)
FH/LH(cid:3)
FH/LH(cid:3)
FH
FH
FH
(cid:3)
A
B
C
D
1998
1990
1985
1986
1999
2007
1976
1972
1992
1976
2000
1998
2009
2003
2012
2001
2011
–
2016I
1995
–
2014
2005
2002H
–
–
2013
2005
2006
2017
2015
2013
2.0
1.4
1.7
2.1
1.1
1.3
1.8
1.0
0.7
1.4
0.4
1.1
1.4
1.3
1.3
0.8
2.1
22.9
21.9
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 intu Potteries, intu Uxbridge, intu Broadmarsh, Soar at intu Braehead and Sprucefield, Northern Ireland.
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 prior to 2002 when it acquired the remaining 80 per cent to take its holding to 100 per cent.
I
intu held a 50 per cent stake in intu Merry Hill from 2014. In 2016 it acquired the remaining 50 per cent to take its holding to 100 per cent.
162
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intu properties plc Annual report 2017
Investment and development property (unaudited)
continued
4 Analysis of net rental income in the year – including Group’s share of joint ventures
Like-for-like property
Acquisition: Madrid Xanadú
Acquisition: intu Merry Hill (50%)
Disposal: intu Bromley
Developments
Net rental income
Year ended
31 December 2017
£m
31 December 2016
£m
436.9
13.0
10.1
–
–
460.0
434.8
–
–
12.5
(0.3)
447.0
£m
2.1
13.0
10.1
(12.5)
0.3
13.0
Movement
%
0.5
n/a
n/a
n/a
n/a
2.9
Financial covenants (unaudited)
163
163
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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
2021
2023
2028
2030
LTV
covenant
LTV
actual
Interest
cover
covenant
Interest
cover
actual
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
80%
48%
125%
247%
Covenants are tested on the Security Group, the principal assets of which are intu Lakeside, intu Braehead, intu Watford,
intu Victoria Centre and intu Derby. During the year, intu Chapelfield was withdrawn from the Secured Group Structure.
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 at loan to value below
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 £767.5 million at 31 December 2017. 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
2017 market value ratio is 32 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
224%
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 Milton Keynes
Sprucefield
intu Uxbridge4
St David’s, Cardiff
intu Trafford Centre
intu Merry Hill
Puerto Venecia, Zaragoza4 (€)
intu Asturias4 (€)
Madrid Xanadú4 (€)
Loan outstanding(cid:3)
at 31 December(cid:3)
20171
£m(cid:3)
Maturity
LTV
covenant
Loan to(cid:3)
31 December(cid:3)
2017(cid:3)
market value2
140.5
33.2
26.0
122.5
250.0
487.8
112.5
60.5
131.5
2019
2020
2020
2021
2022
2024
2019
2021
2022
65%
65%
70%
65%
65%
75%
65%
65%
65%
49%
50%
54%
35%
45%
52%
43%
41%
50%
Interest
cover
covenant
150%
150%
125%
150%
103%5
150%
150%
150%
150%
Interest(cid:3)
cover(cid:3)
actual3
363%
253%
241%
321%
137%5
259%
308%
581%
398%
1 The loan values are the actual principal balances outstanding at 31 December 2017, which take into account any principal repayments made up to 31 December 2017.
The balance sheet value of the loans includes unamortised fees.
2 The loan to 31 December 2017 market value provides an indication of the impact the 31 December 2017 property valuations could have on the LTV covenants. The actual
timing and manner of testing LTV covenants varies and is loan specific.
3 Based on latest certified figures, calculated in accordance with loan agreements, which have been submitted between 31 December 2017 and 31 January 2018. The calculations
are loan specific and include a variety of historical, forecast and in certain instances a combined historical and forecast basis.
4 Debt shown is consistent with the Group’s economic interest.
5 Covenant is a debt service cover ratio (includes interest and scheduled debt repayments).
164
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intu properties plc Annual report 2017
Financial covenants (unaudited) continued
Intu Debenture plc
Loan
£m
231.4
Maturity
2027
Capital cover
covenant
Capital cover
actual
Interest cover
covenant
Interest cover
actual
150%
244%
100%
117%
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 2021*
£375m due in 2022 2.875 per cent
convertible bonds (note 26)**
£160m due in 2018 2.5 per cent
convertible bonds (note 26)**
Net worth
covenant
Net worth
actual
Interest cover
covenant
Interest cover
actual
Borrowings/net
worth covenant
Borrowings/net
worth actual
£1,200m
£2,533m
120%
210%
125%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
175%
175%
66%
12%
12%
* 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.
In effect on or after:
1 year
2 years
5 years
10 years
15 years
Nominal amount
£m
Average rate
%
2,258.7
1,918.5
1,671.1
670.1
457.8
2.41
2.76
3.36
5.02
4.73
Financial information including
share of joint ventures (unaudited)
for the year ended 31 December 2017
165
165
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The information in this section is presented to show the Group including share of joint ventures. A reconciliation from the amounts
shown in the Group’s income statement and balance sheet is provided on the following page.
Group underlying
profit
£m
Share of joint
ventures
£m
2017
Group including
share of joint
ventures
£m
Group underlying
profit
£m
Share of joint
ventures
£m
2016
Group including
share of joint
ventures
£m
Underlying earnings
Rent receivable
Service charge income
Facilities management income from joint
ventures
Revenue
Net rental income
Net other income/(expenses)
Administration expenses
Underlying operating profit
Finance costs
Finance income
Other finance costs
503.4
109.1
3.5
616.0
423.4
3.0
(40.9)
385.5
(213.9)
12.6
(5.9)
42.8
8.7
(0.7)
50.8
36.6
(2.1)
(0.7)
33.8
(6.0)
(9.3)
–
546.2
117.8
2.8
666.8
460.0
0.9
(41.6)
419.3
(219.9)
3.3
(5.9)
484.5
101.6
8.2
594.3
406.1
0.6
(37.8)
368.9
(202.9)
14.9
(5.9)
Underlying net finance costs
(207.2)
(15.3)
(222.5)
(193.9)
Underlying profit before tax, joint ventures
and associates
Tax on underlying profit
Share of underlying profit of joint ventures
Share of underlying profit of associates
Remove amounts attributable to non-controlling
interests
Underlying earnings
178.3
0.1
18.3
0.9
3.4
201.0
18.5
(0.2)
(18.3)
–
–
–
196.8
(0.1)
–
0.9
3.4
201.0
175.0
–
19.8
0.5
4.7
200.0
A reconciliation from the Group’s profit to underlying earnings is provided in note 12(c).
48.1
9.5
(3.1)
54.5
40.9
(1.3)
(0.8)
38.8
(5.6)
(13.4)
–
(19.0)
19.8
–
(19.8)
–
–
–
532.6
111.1
5.1
648.8
447.0
(0.7)
(38.6)
407.7
(208.5)
1.5
(5.9)
(212.9)
194.8
–
–
0.5
4.7
200.0
166
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Financial information including
share of joint ventures (unaudited) continued
for the year ended 31 December 2017
Consolidated income statements
Revenue
Net rental income
Net other income/(expenses)
Revaluation of investment and development
property
Gain on acquisition of businesses
Loss on disposal of subsidiaries
(Loss)/gain on sale of other investments
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
Non-controlling interests
Profit for the year attributable to owners of
intu properties plc
Group income
statement
£m
Share of joint
ventures
£m
2017
Group including
share of joint
ventures
£m
Group income
statement
£m
Share of joint
ventures
£m
2016
Group including
share of joint
ventures
£m
616.0
423.4
3.0
30.8
–
(1.8)
–
(40.9)
(5.9)
408.6
(213.9)
12.6
(38.9)
22.0
50.8
36.6
(2.1)
16.5
–
–
(0.3)
(0.7)
(0.7)
49.3
(6.0)
(9.3)
–
1.0
666.8
460.0
0.9
47.3
–
(1.8)
(0.3)
(41.6)
(6.6)
457.9
(219.9)
3.3
(38.9)
23.0
594.3
406.1
0.6
(78.0)
34.6
(0.3)
74.1
(37.8)
(2.5)
396.8
(202.9)
14.9
(37.9)
(16.3)
(218.2)
(14.3)
(232.5)
(242.2)
190.4
35.5
1.3
227.2
0.1
(24.0)
(23.9)
203.3
13.4
216.7
35.0
(35.5)
–
(0.5)
(0.2)
1.3
1.1
0.6
(0.6)
225.4
–
1.3
226.7
(0.1)
(22.7)
(22.8)
203.9
12.8
154.6
32.1
1.6
188.3
–
(16.5)
(16.5)
171.8
10.9
–
216.7
182.7
54.5
40.9
(1.3)
14.2
–
–
–
(0.8)
(0.4)
52.6
(5.6)
(13.4)
(0.9)
(0.6)
(20.5)
32.1
(32.1)
–
–
–
–
–
–
–
–
648.8
447.0
(0.7)
(63.8)
34.6
(0.3)
74.1
(38.6)
(2.9)
449.4
(208.5)
1.5
(38.8)
(16.9)
(262.7)
186.7
–
1.6
188.3
–
(16.5)
(16.5)
171.8
10.9
182.7
167
167
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Consolidated balance sheets
Group balance
sheet
£m
Share of joint
ventures
£m
2017
Group including
share of joint
ventures
£m
Group balance
sheet
£m
Share of joint
ventures
£m
2016
Group including
share of joint
ventures
£m
Assets
Investment and development property
9,179.4
1,013.1
10,192.5
Investment in joint ventures
Derivative financial instruments
Assets classified as held for sale
Cash and cash equivalents
Other assets
Total assets
Liabilities
Borrowings
Derivative financial instruments
Liabilities associated with assets
classified as held for sale
Other liabilities
Total liabilities
Net assets
Non-controlling interests
Net assets attributable to owners of
intu properties plc
735.5
0.3
309.1
228.0
342.2
(735.5)
0.2
–
50.2
54.3
–
0.5
309.1
278.2
396.5
9,212.1
587.6
–
–
254.7
314.8
732.4
(587.6)
–
–
36.9
17.8
9,944.5
–
–
–
291.6
332.6
10,794.5
382.3
11,176.8
10,369.2
199.5
10,568.7
(4,997.8)
(347.8)
(6.2)
(313.5)
(5,665.3)
5,129.2
(54.2)
(300.1)
(5,297.9)
(4,662.6)
(170.9)
(4,833.5)
(2.5)
(350.3)
(377.7)
(2.3)
(380.0)
–
(76.5)
(379.1)
3.2
(3.2)
(6.2)
(390.0)
–
(282.5)
(6,044.4)
(5,322.8)
5,132.4
5,046.4
(57.4)
(67.6)
–
(26.3)
(199.5)
–
–
–
–
(308.8)
(5,522.3)
5,046.4
(67.6)
4,978.8
5,075.0
–
5,075.0
4,978.8
168
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intu properties plc Annual report 2017
intu properties plc Annual report 2017
Financial information including
share of joint ventures (unaudited) continued
for the year ended 31 December 2017
Investment and development property
Balance sheet carrying value of investment and development property
Tenant incentives included within trade and other receivables
Head leases included within finance leases in borrowings
Market value of investment and development property
2017
£m
2016
£m
10,192.5
9,944.5
118.5
(88.3)
120.4
(80.2)
10,222.7
9,984.7
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
Less Metrocentre compound financial instrument
Less cash and cash equivalents within assets classified as held for sale
Net external debt – before Group’s share of joint ventures
Add share of borrowings 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
Net external debt – including Group’s share of joint ventures
Debt to assets ratio
Market value of investment and development property
Add market value of investment and development property classified as assets held for sale
Net external debt
Debt to assets ratio
Interest cover
Finance costs
Finance income
Underlying operating profit
Interest cover
2017
£m
4,997.8
(228.0)
4,769.8
(183.7)
(0.5)
4,585.6
300.1
(50.2)
2016
£m
4,662.6
(254.7)
4,407.9
(177.8)
–
4,230.1
170.9
(36.9)
4,835.5
4,364.1
5,113.7
(278.2)
4,835.5
4,655.7
(291.6)
4,364.1
2017
£m
2016
£m
10,222.7
9,984.7
306.5
10,529.2
(4,835.5)
45.9%
–
9,984.7
(4,364.1)
43.7%
2017
£m
(219.9)
3.3
(216.6)
419.3
1.94x
2016
£m
(208.5)
1.5
(207.0)
407.7
1.97x
Underlying profit statement (unaudited)
for the year ended 31 December 2017
169
169
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The underlying profit information in the table below shows the Group including share of joint ventures on a line-by-line basis.
Net rental income
Net other income/(expenses)
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 of associates
Remove amounts attributable to
non-controlling interests
Underlying earnings
Underlying earnings per share (pence)
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
Six months
ended
31 December
2017
£m
Six months
ended
31 December
2016
£m
Six months
ended
30 June
2017
£m
Six months
ended
30 June
2016
£m
460.0
0.9
(41.6)
419.3
(219.9)
3.3
(5.9)
(222.5)
196.8
(0.1)
0.9
3.4
201.0
15.0p
447.0
(0.7)
(38.6)
407.7
(208.5)
1.5
(5.9)
(212.9)
194.8
–
0.5
4.7
200.0
15.0p
233.8
0.8
(21.0)
213.6
(112.4)
2.2
(3.0)
(113.2)
100.4
0.1
0.5
1.5
102.5
7.6p
227.6
(0.4)
(20.3)
206.9
(107.1)
0.8
(3.0)
226.2
0.1
(20.6)
205.7
(107.5)
1.1
(2.9)
219.4
(0.3)
(18.3)
200.8
(101.4)
0.7
(2.9)
(109.3)
(109.3)
(103.6)
97.6
0.1
0.2
2.6
100.5
7.5p
96.4
(0.2)
0.4
1.9
98.5
7.3p
97.2
(0.1)
0.3
2.1
99.5
7.5p
Weighted average number of shares (million)
1,343.2
1,333.5
1,343.4
1,334.8
1,343.1
1,332.0
For the reconciliation from basic earnings per share see note 12(c).
170
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intu properties plc Annual report 2017
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 European 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 to the Group’s current circumstances.
In 2017, the Group retained its EPRA Gold Award for exceptional compliance with the EPRA Best Practice Recommendations.
The EPRA measures 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
—(cid:3)per share
EPRA NAV
—(cid:3)per share
EPRA NNNAV
—(cid:3)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
2017
19.4%
15.1%
2016
18.6%
15.0%
£192.3m
£192.9m
14.3p
14.5p
£5,287.3m
£5,200.9m
393p
386p
£4,695.8m
£4,698.9m
349p
4.2%
4.4%
3.0%
349p
4.3%
4.5%
3.0%
Details of the Group’s performance against the EPRA Best Practice Recommendations on Sustainability Reporting can be found
in full in the 2017 corporate responsibility report. In 2017, the Group retained its Gold EPRA Sustainability Best Practice
Recommendations award.
2 EPRA cost ratios
Administration expenses – ongoing
Net service charge costs
Other non-recoverable 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
2017
£m
41.6
19.1
46.6
(6.5)
100.8
(22.6)
78.2
546.2
(20.5)
525.7
(6.5)
519.2
2016
£m
38.6
16.1
44.1
(5.6)
93.2
(18.0)
75.2
532.6
(25.4)
507.2
(5.6)
501.6
EPRA cost ratio (including direct vacancy costs)
EPRA cost ratio (excluding direct vacancy costs)
19.4%
15.1%
18.6%
15.0%
171
171
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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, as presented in note 12(c), is more
appropriate than the EPRA measure in the context of our business. 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:
Basic earnings per share
Adjusted for:
Revaluation of investment and development property
Gain on acquisition of businesses
Loss on disposal of subsidiaries
Gain on sale of other investments
Exceptional administration costs – acquisition and disposal related
Exceptional finance charges – termination of derivative financial instruments
Change in fair value of financial instruments
Tax on the above
Share of joint ventures’ items
Share of associates’ items
Non-controlling interests in respect of the above
EPRA earnings per share
Reconciliation to the Group’s measure of underlying earnings per share
Adjusted for:
Other exceptional items
Other exceptional tax
Share of associates’ items
Share of joint ventures’ items
Underlying earnings per share
2017
2016
Earnings
£m
Shares
million
Pence per
share
Earnings
£m
Shares
million
Pence per
share
216.7
1,343.2
16.1p
182.7
1,333.5
13.7p
(30.8)
–
1.8
–
4.9
26.1
(22.0)
23.9
(17.2)
(1.1)
(10.0)
192.3
1,343.2
7.9
0.1
0.7
–
(2.3)p
–
0.1p
78.0
(34.6)
0.3
–
(74.1)
0.4p
1.9p
(1.6)p
1.8p
(1.3)p
(0.1)p
(0.7)p
14.3p
0.6p
–
0.1p
–
1.1
26.9
16.3
16.3
(12.7)
(1.1)
(6.2)
192.9
1,333.5
6.5
0.2
–
0.4
5.9p
(2.6)p
–
(5.6)p
0.1p
2.1p
1.2p
1.2p
(0.9)p
(0.1)p
(0.5)p
14.5p
0.5p
–
–
–
201.0
1,343.2
15.0p
200.0
1,333.5
15.0p
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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 13(a), is more
appropriate than the EPRA measure in the context of our business. The key difference relates to interest rate 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 historical 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:
Net assets
£m
Shares
million
2017
NAV per
share
pence
Net assets
£m
Shares
million
2016
NAV per
share
pence
NAV per share attributable to owners of intu properties plc
5,075.0
1,343.4
378p
4,978.8
1,343.0
371p
Dilutive convertible bonds, share options and awards
–
1.8
2.6
3.5
Diluted NAV per share
Adjusted for:
5,075.0
1,345.2
377p
4,981.4
1,346.5
370p
Fair value of derivative financial instruments (excluding swaps not
currently used for economic hedges of debt)
Deferred tax on investment and development property
and other investments
Share of joint ventures’ items
Non-controlling interest recoverable balance not recognised
112.1
23.7
5.2
71.3
8p
2p
1p
5p
140.9
0.1
7.2
71.3
10p
–
1p
5p
EPRA NAV per share
5,287.3
1,345.2
393p
5,200.9
1,346.5
386p
Reconciliation to the Group’s measure of underlying earnings per share
Adjusted for:
Swaps not currently used for economic hedges of debt
235.4
18p
236.8
NAV per share (diluted, adjusted)
5,522.7
1,345.2
411p
5,437.7
1,346.5
18p
404p
(b) EPRA NNNAV
The Group’s measure of NNNAV per share (diluted, adjusted), as presented in note 13(b), is equal to the EPRA NNNAV measure
presented below:
Net assets
£m
Shares
million
2017
NAV per
share
pence
Net assets
£m
Shares
million
EPRA NAV per share
5,287.3
1,345.2
393p
5,200.9
1,346.5
Fair value of derivative financial instruments
Excess of fair value of borrowings over carrying value
Deferred tax on investment and development property
and other investments
Share of joint ventures’ items
Non-controlling interests in respect of the above
(112.1)
(430.8)
(23.7)
(47.8)
22.9
(8)p
(32)p
(140.9)
(375.0)
(2)p
(4)p
2p
(0.1)
(9.4)
23.4
2016
NAV per
share
pence
386p
(10)p
(28)p
–
(1)p
2p
EPRA NNNAV per share
4,695.8
1,345.2
349p
4,698.9
1,346.5
349p
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2017
£m
10,223
(379)
9,844
673
2016
£m
9,985
(153)
9,832
660
10,517
10,492
462
(25)
437
23
460
4.2%
4.4%
467
(22)
445
27
472
4.3%
4.5%
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
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 Merry Hill
intu Metrocentre
intu Braehead
intu Derby
Manchester Arndale
intu Victoria Centre
intu Watford
intu Eldon Square
intu Milton Keynes
Cribbs Causeway
St David’s, Cardiff
Madrid Xanadú
Puerto Venecia, Zaragoza
intu Asturias
2017
%
2016
%
1.6
5.8
1.8
5.5
2.5
2.1
1.8
1.5
2.8
1.2
0.4
1.7
6.0
4.5
1.9
3.6
3.0
1.7
7.2
3.1
4.1
2.4
2.7
1.8
3.7
0.2
1.1
–
4.3
4.2
n/a
3.2
0.9
3.0
EPRA vacancy rate is the ERV of vacant space divided by total ERV. This differs from the Group’s measure of occupancy which
measures the occupied units using passing rent not ERV.
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Financial record
2013-2017
(cid:3)
Net rental income
Underlying earnings
Underlying earnings per share1
Dividend per share1
2013
£370m
£140m
13.7p
13.7p
2014
£397m
£162m
13.3p
13.7p
2015
£428m
£187m
14.2p
13.7p
2016
£447m
£200m
15.0p
14.0p
Property revaluation surplus/(deficit)
£126m
£648m
£351m
£(64m)
2017
£460m
£201m
15.0p
14.0p
£47m
NAV per share (diluted, adjusted)1
Market value of investment and development property
Net external debt
Debt to assets ratio
Interest cover
Change in like-for-like net rental income
Occupancy
Growth in footfall (like-for-like)
346p
£7,624m
£3,698m
379p
£8,963m
£3,963m
404p
£9,602m
£4,139m
404p
£9,985m
£4,364m
411p
£10,223
£4,836m
48.5%
1.71x
(1.9)%
95%
(2)%
44.2%
1.82x
(3.2)%
95%
+0%
43.1%
1.91x
1.8%
96%
+0%
43.7%
1.97x
3.6%
96%
+1.3%
45.9%
1.94x
0.5%
96%
+0%
Amounts presented include the Group’s share of joint ventures.
1 Amounts for 2013 are as adjusted by the 2014 rights issue bonus factor.
Glossary
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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 independent external
valuers’ estimate of annual excess turnover rent and sundry
income such as that from car parks and mall commercialisation.
CACI
Provide market research on intu’s customers and UK-wide
location analysis.
Debt to assets ratio
Net external debt divided by the market value of investment
and development property including investment and
development property classified as held for sale.
Diluted figures
Reported amounts adjusted to include the effects of dilutive
potential shares issuable under convertible bonds and employee
incentive arrangements.
Earnings per share
Profit for the year attributable to owners of intu properties plc
divided by the weighted average number of shares in issue
during the period.
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 independent external valuers’ estimate of the Group’s
share of the current annual market rent of all lettable space
after expiry of concessionary periods net of any non-recoverable
charges but before bad debt provisions.
Exceptional items
Items that in the Directors’ view are required to be separately
disclosed by virtue of their size, nature or incidence. Underlying
earnings is considered to be a key measure in understanding the
Group’s financial performance, and excludes exceptional items.
Headline rent ITZA
Annual contracted rent per square foot after expiry of
concessionary periods in terms of Zone A.
Interest cover
Underlying operating profit divided by the net finance costs
excluding the change in fair value of financial instruments,
exceptional finance costs and amortisation of the Metrocentre
compound financial instrument.
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.
LTV (loan to value)
The ratio of attributable debt to the market value of an
investment property.
NAV per share (diluted, adjusted)
NAV per share calculated on a diluted basis and adjusted
to remove the fair value of derivatives (net of tax), goodwill
resulting from the recognition of deferred tax liabilities, and
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 year end.
Net external debt
Net debt after removing the Metrocentre compound financial
instrument and including net debt within liabilities associated
with assets classified as held for sale.
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.
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Glossary continued
NNNAV per share (diluted, adjusted)
NAV per share (diluted, adjusted) adjusted to include the
fair values of derivatives, borrowings 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. 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.
Scrip Dividend Scheme
The Group may offer 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.
SOCIMI
The Spanish equivalent of a Real Estate Investment Trust.
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 (NIY) 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 year 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.
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.
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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, Link Asset Services. Validly completed forms must be
received by Link Asset Services no later than the dividend
Record Date, as 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, Terbium, 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/en/investors/shareholder-information/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.
Dividends
The Directors of intu properties plc have proposed a final
dividend per ordinary share (ISIN GB0006834344) of 9.4 pence
(2016: 9.4 pence) to bring the total dividend per ordinary share
for the year to 14.0 pence (2016: 14.0 pence). A scrip dividend
alternative may 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 20 per cent.
The following are the salient dates for the payment of the
proposed final dividend.
Monday 9 April 2018
Sterling/Rand exchange rate struck
Tuesday 10 April 2018
Sterling/Rand exchange rate and dividend amount in South
African currency announced
Wednesday 18 April 2018
Ordinary shares listed ex-dividend on the Johannesburg Stock
Exchange
Thursday 19 April 2018
Ordinary shares listed ex-dividend on the London Stock
Exchange
Friday 20 April 2018
Record date for 2017 final dividend in London and
Johannesburg
Thursday 17 May 2018
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 Tuesday 17 April 2018 and that no dematerialisation or
rematerialisation of shares will be possible from Wednesday
18 April 2018 to Friday 20 April 2018 inclusive. No transfers
between the UK and South African registers may take place
from Tuesday 10 April 2018 to Friday 20 April 2018 inclusive.
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Shareholder information
Registered Office
40 Broadway, London SW1H 0BT
Registered in England & Wales no. 3685527
LEI: 213800JSNTERD5CJZO95
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
Link Asset Services
PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Calls
are charged at the standard geographic rate and will vary by
provider; lines are open 9.00am to 5.30pm Monday to Friday
Telephone +44 (0) 371 664 0300
Email: enquiries@linkgroup.co.uk
signalshares.com
For shareholders registered in South Africa
Terbium Financial Services
31 Beacon Road, Florida North, 1709
South Africa
Postal address:
PO Box 61272
Marshalltown 2107, South Africa
Telephone +27 (0) 860 222 213
Email: intu@terbium.global
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 terbium.global
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 Terbium company code for intu properties plc is ITUZ.
Share dealing
Existing UK shareholders may trade intu properties plc shares
through Link Share Dealing Services who provide a real-time
online, telephone and postal dealing service.
Contact details are:
linksharedeal.com
Telephone (within UK) 0871 664 0364 (calls cost 10p per
minute plus network extras; lines are open 8.00 am to 4.30 pm
Monday to Friday)
(Ireland) Lo-call 1 890 946 375
(outside UK) +44 20 3367 2686
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
South African 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
+27 11 373 0038 if you are phoning from outside South Africa
or email charityshares@terbium.global
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 (signalshares.com) and
following the instructions given to register an email address.
SA shareholders may register to receive email alerts by written
instruction to the South African Registrar, Terbium, by email
(intu@terbium.global). 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.
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.
Copyright © intu properties plc March 2018
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intu properties plc
40 Broadway, London
SW1H 0BT
intugroup.co.uk