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RNS
Intu Properties PLC  -  INTU   

Final Results

Released 07:00 23-Feb-2017

RNS Number : 5722X
Intu Properties PLC
23 February 2017
 

 

 

 

 

23 FEBRUARY 2017

 

INTU PROPERTIES PLC

AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016

 

 

 

David Fischel, intu Chief Executive, commented:

 

"In a year which will be remembered for its political turbulence, intu is pleased to have recorded a strong set of results with six per cent growth in underlying earnings per share, an increased dividend and stable property values, leaving net assets per share (diluted, adjusted) unchanged at 404 pence.

 

We ended the year with £922 million of cash and available facilities, well placed to pursue our pipeline of active management projects, development and acquisition opportunities both in the UK and Spain.

 

The power and recognition of the intu brand is our major differentiator. With our focus on compelling customer experiences and family friendly fun day-out destinations, we are continuing to meet the demands of the changing retail world, recording increased footfall and 96 per cent occupancy.

 

Major retailers including Zara and New Look have upsized and upgraded existing units and rolled out more of their exciting brands in our prime regional centres. We welcomed international brands such as Victoria's Secret together with the expansion of premium fashion and lifestyle brands such as Jack Wills, Cath Kidston and Joules. In all, our tenants invested around £100 million in new shops and refits over the year which is a significant commitment to our centres.

 

While the environment for business this year is likely to be challenging as the full impact emerges of the UK's EU referendum vote, we are well positioned as we focus on top quality assets in prime locations with high occupancy and strong footfall. The dividend increase reflects the results for the year and our confidence in intu's prospects. We intend to deliver continuing growth in like-for-like net rental income over the coming years."

 

 

 

 

 

 

 

 

Enquiries:

 

intu properties plc

David Fischel

Chief Executive

+44 (0)20 7960 1207

Matthew Roberts

Chief Financial Officer

+44 (0)20 7960 1353

Adrian Croft

Head of Investor Relations

+44 (0)20 7960 1212

 

Public relations

UK:

Justin Griffiths, Powerscourt

+44 (0)20 7250 1446

SA:

Frédéric Cornet, Instinctif Partners

+27 (0)11 447 3030

 

A presentation to analysts and investors will take place at UBS, 5 Broadgate, London EC2 at 9.30GMT on 23 February 2017.  The presentation will also be available to international analysts and investors through a live audio call and webcast. 

The presentation and a copy of this announcement will be available on the Group's website intugroup.co.uk.

 

 

 

Contents:             

 

Highlights of 2016

Chief Executive's review

Operating review

Market review

Top properties

Financial review

Principal risks and uncertainties

Statement of Directors' responsibilities

Financial information

Other information:

Investment and development property

Financial covenants

Financial information including share of joint ventures

Underlying profit statement

Glossary

Dividends

 

 

NOTES TO EDITORS

 

 

intu is the UK's leading owner, manager and developer of prime regional shopping centres with a growing presence in Spain.

 

We are passionate about creating uniquely compelling experiences, in centre and online, that attract customers, delivering enhanced footfall, dwell time and loyalty. This helps our retailers flourish, driving occupancy and income growth. 

 

A FTSE 100 company, we own many of the UK's largest and most popular retail destinations, including nine of the top 20, with super regional centres such as intu Trafford Centre and intu Lakeside and vibrant city centre locations from Newcastle to Watford.

 

We are focused on delivering against four strategic objectives: optimising the performance of our assets to deliver attractive long term total property returns, delivering our UK development pipeline to add value to our portfolio, leveraging the strength of our brand and seizing the opportunity in Spain to create a business of scale. 

 

We are committed to our local communities - our centres support around 120,000 jobs representing about 4 per cent of the total UK retail workforce - and to operating with environmental responsibility.

 

Our success creates value for our retailers, investors and the communities we serve.

 

This press release 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 press release. 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 press release 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.

 

HIGHLIGHTS OF 2016

 

Financial highlights 1

 

 

 

 

 

 

Year ended 31 December

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net rental income (£m) 2

447

 

428

 

 

Underlying earnings (£m)

200

 

187

 

 

Property revaluation (deficit)/surplus (£m) 2

(64)

 

351

 

 

Profit for the year (£m)

172

 

518

 

 

 

 

 

 

 

 

Underlying EPS (pence)

15.0

 

14.2

 

 

Dividend per share (pence)

14.0

 

13.7

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Market value of investment properties (£m) 2

9,985

 

9,602

 

 

Net external debt (£m) 2

4,364

 

4,139

 

 

 

 

 

 

 

 

NAV per share (diluted, adjusted) (pence)

404

 

404

 

 

Debt to assets ratio (per cent) 2

43.7

 

43.1

 

 

 

 

 

 

 

 

1 Please refer to glossary for definition of terms.

2 Including Group's share of joint ventures.

 

Our results show growth in net rental income and underlying earnings with net asset value per share stable:

 

·      strong growth in like-for-like net rental income of 3.6 per cent, in line with guidance, with an outstanding first half of the year and the second half matching the strong comparative from 2015 

·      underlying earnings increased by 7 per cent to £200 million, primarily as a result of the growth in like-for-like net rental income

·      like-for-like property values unchanged in the year absorbing the 1 per cent increase in stamp duty and significantly outperforming the IPD monthly retail index which decreased by 4.7 per cent. Total deficit of
£64 million; mostly from developments with the deficit expected to reverse as the projects progress

·      profit for the year of £172 million has reduced by £346 million, impacted by property revaluations
(2015: £518 million including a property revaluation surplus of £351 million)

·      underlying earnings per share increased by 6 per cent to 15.0 pence (2015: 14.2 pence) and dividend up
2 per cent to 14.0 pence

·      net asset value per share (diluted, adjusted) of 404 pence unchanged from 2015, delivering a total financial return in the year of 3.4 per cent

·      an active year of asset recycling has enabled us to maintain a similar debt to assets ratio, acquiring the remaining 50 per cent of intu Merry Hill for £410 million from the proceeds of the disposals of intu Bromley and our interest in Equity One  

·      cash and available facilities of £922 million (31 December 2015: £588 million)

 

 

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 for more details on the presentation of information and alternative performance measures used.

 

 

HIGHLIGHTS OF 2016

 

Optimising asset performance

 

We aim to deliver attractive long-term total property returns from strong, stable income streams

 

·      like-for-like property values unchanged in the year, significantly outperforming the IPD monthly retail index which fell by 4.7 per cent

·      increased like-for-like net rental income by 3.6 per cent in the year, reflecting improving rental levels from new lettings and rent reviews

·      signed 214 long-term leases (187 in the UK and 27 in Spain) delivering £38 million of annual rent at an average of
4 per cent above previous passing rent and in line with valuers' assumptions

·      new lettings offset by the closure of BHS stores leaves occupancy unchanged at 96.0 per cent

·      increased footfall by 1.3 per cent, compared to a 2.0 per cent fall in the national ShopperTrak retail average

Delivering UK developments

 

By extending and enhancing our existing locations we aim to deliver superior returns

 

·      capital expenditure of £93 million in the year including £37 million on the extension of intu Watford and £13 million on completed restaurant developments

·      completed the casual dining developments at intu Metrocentre (nine restaurants) and intu Eldon Square
(20 restaurants)

·      good letting progress on the extension of intu Watford which is on budget and on target to open in late 2018

·      intend to commence over £200 million of development projects in 2017 - the Nickelodeon-anchored leisure scheme at intu Lakeside, the enclosure of Barton Square at intu Trafford Centre and the redevelopment of intu Broadmarsh

Making the brand count

 

We leverage the strength of our brand to create compelling experiences for our customers

 

·      net promoter score, our measure of customer service, consistent at 70 for the year

·      intu Experiences, our dedicated promotions business, generated income of over £20 million, equivalent to the rental income of our eighth largest centre

·      intu.co.uk, our online shopping platform with strong editorial content, has attracted over 480 retailers and delivered
28 million website visits in 2016, an increase of 15 per cent on 2015, with sales for retailers of £6 million

·      intensity reduction in carbon emissions of 47 per cent since 2010

Seizing the growth opportunity in Spain

 

Our strategy is to create a business of scale through acquisitions and development projects

 

·      occupancy remained strong in our two existing centres, with footfall and retailer sales both up by 2 per cent

·      signed 27 leases at 20 per cent above the previous passing rent

·      strong increases in the market value of both centres with intu Asturias up 14 per cent and Puerto Venecia up
10 per cent

·      commenced a €7 million project at intu Asturias to develop a previously under-utilised space

·      completed land assembly at intu Costa del Sol and successfully incorporated the proposed shopping resort into the general plan of Torremolinos

 

CHIEF EXECUTIVE'S REVIEW

 

intu focuses solely on regional shopping centres both here in the UK and those we are developing and improving in Spain. Our aim is to continue to advance a high-quality and sustainable business that is resilient and well-placed to create long-term value, in the face of changes in the global and national economy and structural changes in retail.

 

We have made considerable progress in 2016 on our strategic priorities. The core business is performing well and has strong momentum, with many projects due to start in 2017.

 

We have delivered 6 per cent growth in underlying earnings per share to 15.0 pence, driven by a 3.6 per cent growth in like-for-like net rental income from increased rental levels, improved occupancy and the positive outcome of our recent redevelopment work.

 

Net asset value per share (diluted, adjusted) has been stable at 404 pence, with overall like-for-like property values unchanged in the year. At 31 December 2016, we had cash and available facilities of £922 million, giving us considerable financial flexibility.

 

Increased focus on the best in class

With the disposal of intu Bromley and completion of our exit from the US on favourable terms, we have continued the process of recycling capital into our super prime regional centres, acquiring the remaining 50 per cent of intu Merry Hill and progressing development projects at other key centres.

 

Owning 100 per cent of intu Merry Hill allows us to advance the many improvement opportunities more rapidly and due to its size the returns should be meaningful. The first steps are already underway through taking back the former Sainsbury's store to facilitate sizeable re-tenanting transactions.

 

The intu difference

Our strategic priorities are underpinned by what we call the intu difference. This is shorthand for what differentiates us from other retail landlords. It is how we combine our scale, expertise and insight to create compelling experiences for our customers which in turn deliver good results for our retailers and value for our shareholders and other stakeholders.

 

Prime centres for quality retailers

The strong growth this year in like-for-like net rental income, following the positive outcome in 2015, is a reflection of our overall approach over the last few years - investing in our prime centres and focusing on getting the right tenants in the right place, paying the right rent, and removing poorer quality tenants and undesirable short-term lets.

 

Retailers understand the intu difference and appreciate how we deliver customers consistently to our high-footfall locations. They recognise these are locations where they really need to have a presence. The pulling power of our centres has been illustrated in 2016 with key fashion retailers upsizing and making an increased long-term investment, with the likes of Next, Primark, Inditex, H&M and New Look all increasing their store sizes and overall presence in our centres.

 

We are continuously improving the look of our centres for both retailers and customers. Occupancy is high, and as a result income has been growing and valuations have been stable in an uncertain investment market.

 

Strengthening our fortresses

We are on site with our extension of intu Watford which will transform the centre into a major regional offering and we have opened two new restaurant redevelopments at intu Eldon Square and intu Metrocentre, which give customers reasons to stay for longer. Both these restaurant developments have delivered good financial returns.

 

Looking forward to 2017, we have three large projects to get underway: the redevelopment of intu Broadmarsh in Nottingham, the leisure extension at intu Lakeside and the enclosure and extension of Barton Square at intu Trafford Centre.

 

Delivering a multichannel solution

We are seeing substantial benefits from the brand, starting with intu Experiences, which is now generating over £20 million of income a year, equal to our eighth biggest shopping centre. This includes promotions across multiple centres with global brands such as 20th Century Fox, Mercedes Benz and Nespresso.

 

Our online shopping platform has shown a marked improvement in the year with strong growth in revenue and traffic on intu.co.uk as the number of shoppable retailers has increased. We have continued to develop the website, further enhancing the experience and continually reinforcing the advantage we get from the national intu brand, something not available to our competitors.

 

All this is evidenced by the growing awareness of the intu brand, recognition of which, on an unprompted basis, has risen strongly in the year to over 20 per cent of UK shoppers surveyed.

 

Performing strongly in a recovering Spanish economy

Our two existing centres are performing well. At intu Asturias, the new restaurant terrace has been well received and with the centre effectively full we are starting a project to create more units from space not previously lettable. Puerto Venecia in Zaragoza has achieved some good lettings, including Globo and Fnac, which have pushed up occupancy to 97 per cent.

 

We have entered an exclusivity agreement to acquire the 153,000 sq m Xanadú shopping centre in Madrid. Should this transaction complete, we would then own three of Spain's top-10 centres.

 

Finally, at intu Costa del Sol we are closing in on the final piece of planning to allow us to start this project and move further forward with our aim of having the best regional centre in five or more of the top-10 shopping regions in Spain in the next five to seven years.
 

Being a good corporate citizen

Trust in business is vital and good corporate citizenship is engrained in our culture, in how we treat our colleagues, how we operate our centres and how we deal with our customers.

 

We have a diverse workforce. We have always embraced the principle of a national living wage and we do not operate zero-hours contracts. 

 

We also believe the intu name should be a kite mark for the sort of centre you want in your city and we are very active in the communities in which we operate.

 

Outlook for 2017

The environment for business is likely to be challenging as the full impact emerges of the UK's EU referendum vote but we are soundly positioned as we concentrate on top-quality assets in prime locations with high occupancy and strong footfall.

 

Our strategy for 2017 remains unchanged in terms of relentless focus on improving our centres and overall business performance. We intend to deliver continued growth in like-for-like net rental income and we reiterate that we expect this to be in the 0 to 2 per cent range for 2017, subject to no material tenant failures, down in the first half against the strong 2016 comparative and up in the second half year. This includes an adverse impact of some 2 per cent from units being held for redevelopment and from the full year impact of BHS closures.

 

STRATEGIC REVIEW

 

OPERATING REVIEW

 

Our operating review analyses how we have performed in the year and sets out our strategy.

 

Optimising asset performance

 

We focus on creating vibrant environments where shoppers want to be and retailers need 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.

 

Valuation

The valuation of our like-for-like investment property portfolio was unchanged, with a small deficit of £4.3 million. This was significantly ahead of the IPD monthly retail index which reported a 4.7 per cent decrease. The outcome represents the seventh consecutive year of outperformance of the IPD index.

 

Excluding the negative impact of the 1 per cent increase in the year in stamp duty, from 4 per cent to 5 per cent, our like-for-like portfolio would have increased in value by around 1 per cent. This reflects the improvements in the retail and leisure mix along with the tightening supply of vacant units driving increases in expected future rental values. The strong performance is especially pronounced in centres where we have improved the mix of catering, retail and leisure and now have minimal vacancy, such as intu Chapelfield and intu Eldon Square.

 

In addition to the like-for-like deficit, we had a £60.8 million reduction in the value of redevelopments, predominantly the Charter Place extension to intu Watford. We expect this reduction to reverse as the development progresses, particularly once intu Watford and Charter Place are valued as a single asset rather than separately, as at present. The valuation of intu Watford does not, at this point in the development of Charter Place, reflect any of the anticipated positive impact of the extension on rental values of the existing centre.

 

The valuation of our portfolio is now spread over three valuers, Cushman & Wakefield, CBRE and Knight Frank, following a tender exercise in 2016. This has resulted in one-third of our assets being valued by a different firm of valuers. Some of the figures in the table below are therefore not fully comparable as there are differences in approach between the firms in how they look at rental value and equivalent yield components of a valuation.

 

On a like-for-like basis where we had no change in valuer, ERV increased by 1.2 per cent in the year (overall Group unchanged), outperforming the IPD index which indicated a 0.8 per cent increase.

 

The weighted average nominal equivalent yield at 31 December 2016 was 5.02 per cent, a reduction of 12 basis points in the year, reflecting our ongoing asset management initiatives, reducing vacancy and long average unexpired lease terms. Based on the gross portfolio value, the net initial yield 'topped-up' for the expiry of rent free periods was 4.45 per cent.

 

Valuation metrics

 

 

 

 

 

Full

Second

First

 

year

half

half

 

2016

2016

2016

 

 

 

 

Group revaluation surplus/(deficit) (like-for-like)

0.0%

-0.6%

+0.6%

IPD1 capital growth

-4.7%

-3.5%

-1.1%

 

 

 

 

Group weighted average nominal equivalent yield

5.02%

5.02%

5.01%

Change in Group nominal equivalent yield

-12bp

+1bp

-13bp

IPD1 equivalent yield shift

+29bp

+25bp

+4bp

 

 

 

 

Group 'topped-up' initial yield (EPRA)

4.45%

4.45%

4.49%

 

 

 

 

Group change in like-for-like ERV

0.0%

+0.1%

-0.1%

IPD1 change in rental value index

+0.8%

+0.3%

+0.5%

 

 

 

 

 

1 IPD monthly index, retail.

 

 

The table below shows the main components of the £63.8 million revaluation deficit:

 

 

 

 

 

 

 

 

 

Market value

 

Like-for-like

 

31 December

 

31 December

 

Surplus/

 

Surplus/

 

2016

 

2015

 

(deficit)

 

(deficit)

 

£m

 

£m

 

£m

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

intu Lakeside

1,375.0

 

1,334.0

 

28.6

 

2

intu Chapelfield

296.3

 

272.5

 

23.6

 

9

Puerto Venecia, Zaragoza

212.5

 

166.1

 

19.3

 

10

intu Asturias

118.5

 

89.1

 

14.3

 

14

intu Eldon Square

317.7

 

299.7

 

10.0

 

3

intu Potteries

169.0

 

175.1

 

(9.3)

 

(5)

St David's, Cardiff

353.3

 

368.6

 

(14.3)

 

(4)

intu Metrocentre

945.2

 

952.3

 

(15.3)

 

(2)

intu Braehead

546.2

 

585.5

 

(40.8)

 

(7)

Other like-for-like

5,047.2

 

5,041.0

 

(20.4)

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total like-for-like

9,380.9

 

9,283.9

 

(4.3)

 

-

intu Merry Hill acquisition (50%)

444.6

 

-

 

3.3

 

n/a

Other additions

6.0

 

-

 

(0.3)

 

n/a

intu Bromley disposal

-

 

174.1

 

(1.7)

 

n/a

Redevelopments

153.2

 

144.4

 

(60.8)

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investment and development property

9,984.7

 

9,602.4

 

(63.8)

 

 

 

 

 

 

 

 

 

 

                   

 

·      intu Lakeside: completion of new leases for those that expired in 2015 adds certainty to the income streams going forward as well as providing evidence for growth in future rental levels

·      intu Chapelfield: strong demand linked with limited vacant units and improvements to the tenant mix drive rental values and have further enhanced the centre's prime status in its catchment

·      Puerto Venecia: improved occupancy and rental growth in a buoyant Spanish market

·      intu Asturias: limited vacant space and strong operating metrics increase rental growth potential

·      intu Eldon Square: benefit of improved leisure, with Grey's Quarter opening fully let, along with improved tenant mix and minimal vacancy have a favourable impact on the attractiveness of this centre

·      intu Potteries: evidence from the sale of similar assets in early 2016 has led to an adjustment in the yield profile on this centre

·      St David's, Cardiff: impact of increased car park business rates and increase in stamp duty 

·      intu Metrocentre: impact of increase in stamp duty, with no real increase in rental values

·      intu Braehead: continuation of the less buoyant occupier and investment market in Scotland has resulted in a reduction in value of this centre

·      intu Merry Hill: we acquired the remaining 50 per cent in 2016, which is non like-for-like. The surplus on the centre as a whole benefited from the positive letting activity in the year

·      intu Bromley: book value movement from head lease and incentives accounting

·      redevelopments: since December 2015, the previously income-producing properties of Charter Place have been demolished and the site is now valued on a risk-adjusted cash flow model leading to a deficit which we expect to reverse as the development progresses

 

Operating metrics

 

 

 

 

2016

2015

 

 

 

 

 

 

Occupancy

96.0%

95.8%

- of which, occupied by tenants trading in administration

0.5%

0.5%

Like-for-like change in net rental income

+3.6%

+1.8%

Leasing activity - number, new rent

214, £38m

261, £46m

- new rent relative to previous passing rent

+4%

+10%

Footfall

+1.3%

+0.3%

Retailer sales (like-for-like centres)

+0.2%

+2.1%

Rent to estimated sales (exc. anchors and major space users)

12.2%

12.5%

 

 

 

 

Occupancy is 96.0 per cent, a small increase on December 2015, with the impact of our proactive asset management and improved tenant demand offset by the closure of the BHS stores.

 

Like-for-like net rental income was up 3.6 per cent against 2015 due to the better rental values from strong retailer demand, development units coming back on stream and improved occupancy partially offset by the closure of the BHS stores in August 2016. The outturn was in line with our guidance with the second half of the year matching the strong comparative for 2015 following an outstanding first half-year performance.

 

 

We agreed 214 long-term leases in the year, with retailers continuing to focus on increasing their space in prime, high-footfall retail destinations. This amounted to £38 million annual rent, at an average of 4 per cent above previous passing rent (like-for-like units) and in line with valuers' assumptions. Significant activity in the year includes:

 

·      new international brands continuing to expand in the UK. Australian accessories retailer Lovisa signed two of its first five UK leases at intu centres and Victoria's Secret continued its roll out at St David's, Cardiff

·      premium fashion and lifestyle brands expanding with Joules, Jack Wills, Cath Kidston, Calvin Klein, Kuoni and Nespresso all taking space in the year

·      established fashion retailers upsizing and rolling out more of their brands. New Look are increasing their space at intu Trafford Centre as well as continuing the roll out of New Look Men with their largest store to date to open at intu Metrocentre. Inditex have opened a new larger Zara store at intu Trafford Centre as well as introducing Stradivarius, Pull&Bear and Zara Home and at intu Merry Hill, River Island and JD Sports have both upsized

 

225 shops opened or refitted in our UK centres in 2016, around 8 per cent of our 2,700 units. Tenants have invested £96 million in these stores, a significant demonstration of their commitment to our centres.

 

We settled 297 rent reviews in the year for new rents totalling £60 million, an average uplift of 8 per cent on the previous rents.

 

Our footfall increased by 1.3 per cent in the year as we delivered a compelling mix of retail, catering and leisure along with using the intu brand to promote well-targeted customer-focused events, such as a virtual reality booth at intu Victoria Centre and a beach at intu Lakeside. This compares with the ShopperTrak measure of UK national retail footfall which fell by 2.0 per cent in the year.

 

Estimated retailer sales in our centres were up 0.2 per cent in 2016, impacted by the closure of BHS. Excluding this, the increase would be 0.5 per cent and similar to the British Retail Consortium trends. The ratio of rents to estimated sales for standard units reduced slightly in the year to 12.2 per cent.

 

The difference between annual property income of £467 million and ERV of £543 million represents £31 million from vacant units, reversion from lease expiry and rent reviews of £40 million and the impact of rents subject to a rent free period of £27 million less non-recoverable costs of £22 million. Of the £40 million reversion, £32 million, 7 per cent, is realisable in the next 10 years.

 

The weighted average unexpired lease term is 7.7 years (31 December 2015: 7.9 years).

 

Delivering UK developments

 

In 2016 we spent £93 million on capital expenditure including £37 million on the extension of intu Watford and £13 million on completed casual dining developments.

 

Looking ahead, we are progressing our near-term pipeline in the UK of £655 million which, along with a further £1.2 billion of opportunities over the next 10 years, provides a robust platform for organic growth delivering value-enhancing returns.

 

Near-term pipeline

Our UK development pipeline over the next three years amounts to £655 million.

 

 

 

 

 

 

 

Cost to completion (£m)

 

Total

2017

2018

2019

 

 

 

 

 

Committed

249

120

119

10

Active asset management pipeline

262

88

90

84

Major extensions and redevelopments

144

38

72

34

 

 

 

 

 

 

 

 

 

 

Total UK

655

246

281

128

Spain*

231

51

86

94

 

 

 

 

 

 

 

 

 

 

Total

886

297

367

222

 

 

 

 

 

* intu Costa del Sol assumes 50 per cent joint venture partner.

 

We are committed to spending £249 million over the next three years:

·      at intu Watford we are on target and on budget with the 400,000 sq ft extension due to be completed in late 2018. This project has £143 million cost to completion. The extension will be anchored by Debenhams and Cineworld and is around two-thirds pre-let, by space, which significantly de-risks the project. 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 generated through the existing centre

·      other active asset management projects total £106 million and include the £56 million enclosure and extension of Barton Square and the £7 million redevelopment of Halle Square at Manchester Arndale to create a casual dining destination in the heart of Manchester

 

Our pipeline of planned active asset management projects over the next three years amounts to £262 million and we would expect these to generate a stabilised initial yield on cost of 6 to 10 per cent. We have projects at every centre and the flexibility to start these projects when we have the required level of pre-lets. Projects include:

·      at intu Merry Hill we have several projects expected to cost around £110 million to deliver our strategy for the centre. These include right-sizing a number of anchors and major space users, which in turn will reduce the number of smaller units, and repositioning the catering and leisure offering

·      mall refurbishment and right-sizing of units at intu Metrocentre costing around £26 million

We have progressed the next wave of major extensions and redevelopments and expect to invest an estimated £144 million:

·      at intu Lakeside we have signed Nickelodeon to anchor the leisure extension. We continue to progress the other leisure and catering lettings and should be on site in 2017, with the project expected to cost £73 million and deliver a stabilised initial yield on cost of around 6 per cent

·      at intu Broadmarsh we are working towards the required level of pre-lets to commence this £100 million project, of which our share will be £71 million

 

Future opportunities

Beyond 2019, we have a £1.2 billion pipeline of opportunities across several centres with major extensions planned at intu Lakeside, intu Victoria Centre, intu Braehead and Cribbs Causeway, and an upgrade and remodelling of intu Milton Keynes. The first three projects have planning approvals and we are in the planning process on the other two. We expect these projects to generate a stabilised initial yield on cost of around 7 per cent and we will bring these projects forward in line with tenant demand.

 

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 2016 were £922 million.

 

Further recycling potential lies in the introduction of partners into some of our centres. In addition, to fund the future opportunities we expect to raise finance on near-term projects as they complete.

 

Making the brand count

 

By combining our scale, expertise and insight to create compelling experiences we are seeing the benefit of the brand grow year-on-year. Our in-house teams ensure we offer the best customer service and experience in a multichannel world.

 

Customer service

Our focus on putting the customer first is embedded in the business, with our net promoter score, our measure of customer service, consistent at 70.

 

intu Experiences

We delivered nationwide immersive brand partnerships, mall commercialisation and advertising, which generated income of over £20 million in 2016, our in-house team ensuring all promotional activity meets our quality standards. A greater share of this revenue is now from media and promotional activity rather than traditional mall kiosks, thereby enhancing the customer experience.

 

With over half of the UK's population visiting an intu centre at some point through the year in person or online, we are increasingly working with global brands on a national basis to provide high-quality promotional events, both physically and digitally across multiple centres. One example of this is Playmobil, who sponsored our Christmas grottos across the portfolio.

 

We also introduce new concepts to our shopping centres, blurring the lines between short- and long-term lettings, including car showroom pop-ups, such as Mercedes Benz, across the portfolio.

 

intu Digital

In 2016, we generated improved sales for retailers of £6 million transacted through intu.co.uk, our premium content publisher and shopping platform, demonstrating the rising attraction of our digital offering. The commission on these sales was further augmented by income from retailers using the intu platform for online marketing campaigns.

 

We recorded 28 million website visits in 2016, an increase of 15 per cent on the previous year. Key to driving customers to the 480 affiliate retailers on the website is the 2.5 million individuals on our active marketing database delivering above industry average open and click-through rates from online marketing campaigns.

 

Seizing the growth opportunity in Spain

 

Our Spanish strategy is to create a business of scale through the acquisitions to date and our pipeline of development projects. Concentrating on the top-10 key catchments, we aim to establish a market-leading position in the country through ownership and management of prime shopping resorts. We own and manage two top-10 Spanish centres and have four development sites with the most advanced being intu Costa del Sol.

 

Operational performance

Our two centres, intu Asturias and Puerto Venecia, Zaragoza, are benefiting from our active asset management approach and the improving Spanish economy, with footfall and retailer sales both increasing by 2 per cent.

 

Occupancy is 99 per cent at intu Asturias and 97 per cent at Puerto Venecia where we have reduced the vacancy level in the retail park in the year.

 

We agreed 27 new long-term lettings in the year, amounting to €3 million new annual rent, at an average of 20 per cent above previous passing rent (like-for-like units) and in line with valuers' assumptions. New names to our Spanish centres included Snipes, Joma Sport and Globo.

 

intu's 50 per cent share of Puerto Venecia was valued at €249 million at 31 December 2016, an increase of €24 million (10 per cent). intu's share of intu Asturias increased by €18 million (14 per cent) in the year to €139 million.

 

Potential acquisition

We have entered into an exclusivity agreement to acquire the 153,000 sq m Xanadú shopping centre in Madrid. It has footfall of 13 million, 210 stores and Spain's only indoor ski slope. The transaction will initially be funded from a combination of bank financing and existing facilities whilst we look to introduce a joint venture partner at a later date. Should this transaction complete, we would own three of Spain's top-10 centres.

 

Near-term pipeline

We have committed capital expenditure of €10 million and a pipeline of projects costing a further €29 million. The committed expenditure is primarily focused on intu Asturias where we have commenced the redevelopment of a previously underutilised area, to be anchored by supermarket retailer, masymas, and have plans to further improve the catering.

 

We are continuing with our plans for the much anticipated shopping resort development, intu Costa del Sol, just outside Málaga. In 2016 we completed the land assembly and successfully incorporated the proposed resort into the general plan of Torremolinos. With our further design enhancements, the reaction from the occupier market has exceeded expectations. We anticipate being on site in 2017, once we have received the required final regional planning approval, with the total cost expected to be around €700 million, including the €78 million already incurred by intu, at a stabilised initial yield of around 7 per cent.

 

Future opportunities

We continue to develop plans at the three other sites in Valencia, Vigo and Palma, with the next development likely to be intu Valencia, following on from intu Costa del Sol.

 

Acquisitions and disposals

 

In line with our strategy, we have recycled £400 million of capital in the year from non-core assets to focus on our prime centres where we have the opportunity to deliver superior returns.

 

Acquisitions

In June 2016 we completed the acquisition of the remaining 50 per cent of intu Merry Hill from QIC for £410 million. We believe the centre presents a significant opportunity to re-engineer and update the tenant mix. Encouraging large flagship formats and reducing the number of smaller units will make the centre more attractive to retailers and customers, and improve the rental tone. This strategy is similar to that which has been successfully implemented at intu Trafford Centre and intu Lakeside.

 

Disposals

In January 2016 we disposed of our interest in Equity One for £202 million to complete our exit from the US allowing us to focus on our core shopping centres, realising a gain on disposal of £74 million. The disposal price was $26 per share.

 

In December 2016 we completed the disposal of our share of intu Bromley valued at £178 million, a small premium to the June 2016 market value and realising initial consideration of £82 million.

 

Corporate responsibility

 

Making a meaningful difference is important to us. We work closely with our stakeholders to keep communities thriving, to create strong community partnerships and to care for the environment.

 

Our progress in 2016

 

 

 

 

Pillar

Impact

Commitment

2016 performance

 

 

 

 

Communities and economy

 

Community

 

Support relevant community initiatives

 

 

Extend employability programmes to all centres by 2025

£1.5m charitable donations

(2015: £1.8m)

 

New retail employability programme at intu Watford

 

 

 

 

 

 

 

 

 

 

Economic contribution

 

Demonstrate total economic impact

 

£4.9bn GVA (2015: £4.2bn)

 

 

 

 

 

 

 

 

Environment

 

Energy and carbon

50% intensity reduction in carbon emissions by 2020 against 2010 baseline

21% intensity reduction (47% reduction since 2010)

 

 

 

 

 

 

 

 

 

Waste management

99% of waste diverted from landfill by 2020 against 2010 baseline

 

75% of waste generated recycled by 2020 against 2010 baseline

100% diverted (2015: 100%)

 

74% recycled (2015: 72%)

 

 

 

 

 

 

 

 

 

Water management

10% intensity reduction of m3/million customers by 2020 against 2010 baseline

2% intensity increase (14% reduction since 2010)

 

 

 

 

 

 

 

 

Relationships

Customers

Improve customer experience score

70 average net promoter score (2015: 69)

 

 

 

 

 

 

 

 

 

Our people

Increase employee volunteering

354 volunteers (2015: 101)

 

 

 

 

 

 

Increase employee awareness of CR

64% staff aware of CR programmes

 

 

 

 

 

 

 

MARKET REVIEW

 

UK investment market

The uncertainty from the outcome of the EU referendum vote has intensified investor caution, but has led to a flight to quality. This is illustrated by prime yields remaining stable, whereas the yield on secondary assets is starting to drift outwards, principally due to lack of demand.

 

Our top-quality prime shopping centres remain attractive to global investors as demonstrated by our disposal of intu Bromley, with many investors generally attracted to the UK's well regulated, liquid and transparent market.

 

Development of prime retail property remains low, resulting in limited supply for occupiers and potential upward pressure on rental values in destination centres such as ours.

 

UK consumer market

Whilst the majority of economic indicators relating to the UK consumer remain strong, uncertainty has increased because of the unknown impact of the EU referendum vote.

 

Unemployment remains at record low levels, and with wage growth still rising faster than inflation shoppers have increased levels of disposable income. The Asda benchmark index shows their measure of household income 5 per cent higher than the previous year.

 

Retail spending, as shown by the British Retail Consortium like-for-like non-food retail sales, continues to show an average growth rate of around 1 per cent for 2016 year-on-year.

 

Consumer confidence, as measured by GfK, shows consumers remain relatively confident about their personal finance situation, but confidence in the general economic situation for the UK has reduced since the EU referendum vote.

 

Retailer administrations in 2016 were around 50 per cent of the 10-year average, according to the Centre for Retail Research, but higher than 2015, with BHS being the largest casualty. This was the only significant failure in the intu portfolio and accounted for around 1 per cent of our rent roll.

 

Occupier market

Retail is one of the UK's most dynamic and flexible industries which has shown itself able to adapt quickly to what is a fast-changing environment. 2017 will see retailers facing both structural and economic challenges - the winners will be those with the right stores in the right places, who align their online and in store strategies and who give customers an experience they cannot get elsewhere.

 

Economic pressures include the impact on retailers' cost bases from the weakness of sterling, business rates revaluations and increases in the national living wage. A potential squeeze on disposable income from higher inflation may be realised and add more pressure. Structurally, retailers are still coming to terms with the opportunities and costs of internet shopping.

 

On the plus side, going into 2017 consumer confidence has held up since the EU referendum and there is evidence that where customers are offered an enticing mix of retail, catering, leisure and experiences, they come in large numbers, as our raised footfall over the Christmas period shows. Retailers are responding to this trend by focusing on fewer, often larger, stores in the best locations. More retailers are taking an integrated multichannel approach and previously online-only retailers are now looking at physical space to deliver growth.

 

With our prime portfolio of shopping centres, our focus on compelling customer experiences and our sophisticated online offer we are well positioned to meet the demands of this changing world.

 

Seven retail trends for 2017:

·        upsizing: top retailers, such as Topshop, Zara, New Look and JD Sports, are increasing their space to create flagship stores in our centres

·        portfolio of brands: as well as upsizing, larger retailers are bringing in new brands. Inditex are adding Stradivarius and Pull&Bear, and New Look Men is becoming a standalone fascia

·        new international retailers: in the last few years we have seen Smiggle, Tiger and Kiko enter the UK market and expand rapidly. This year accessories retailer Lovisa from Australia has opened its first stores

·        aspirational: lifestyle brands are seeing the benefits of shopping centres which offer high ABC1 demographics. Brands such as Jack Wills, Joules and Cath Kidston are all expanding

·        miniaturisation: traditional large-format retailers, car manufacturers like SEAT for example, are taking smaller stores at intu centres to get access to a higher footfall of their core customers

·        reinvention: retailers previously expected to disappear from the high street are reinventing their offer with a focus on customer service. Travel agencies, such as Kuoni and Virgin Holidays are expanding in this market

·        the rise of the day out: with prime shopping centres now seen by customers as a day out destination, new catering and leisure operators are increasing their presence throughout our portfolio

 

Spanish market

In recent years, the Spanish economy has had significant growth making it one of Europe's fastest growing economies. Forecasts suggest that this is expected to continue into 2017. For the consumer, unemployment is at its lowest level for several years and household spending remains solid. This in turn benefits retail sales which are further enhanced by record levels of tourists.

 

The investment market remains strong with continuing investor confidence in Spanish real estate supported by an economy that is growing. With the return of bank financing, there is a weight of money in the market looking to invest in quality assets. Due to lack of development in recent years, this is a scarce asset class. All these factors are driving yields lower.

 

TOP PROPERTIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual

Headline

 

 

 

Market

Size

 

Number

property

rent

ABC1

 

 

value

(sq ft 000)

Ownership

of stores

income

ITZA

customers

Key tenants

 

 

 

 

 

 

 

 

 

 

Super-regional centres

 

intu Trafford Centre

£2,312m

1,973

100%

233

£89.3m

£433

66%

Debenhams, Topshop, Selfridges, John Lewis, Next, Apple, Ted Baker, Victoria's Secret, Odeon, Legoland Discovery Centre, H&M, Hamleys, Marks & Spencer, Zara, Sea Life

intu Lakeside

£1,375m

1,435

100%

249

£56.9m

£355

66%

House of Fraser, Debenhams, Marks & Spencer, Topshop, Zara, Primark, Vue, Hamleys, Victoria's Secret

intu Metrocentre

£945m

2,108

90%

316

£51.6m

£280

52%

House of Fraser, Marks & Spencer, Debenhams, Apple, H&M, Topshop, Zara, Primark, River Island, Odeon

intu Merry Hill

£899m

1,671

100%

213

£39.1m

£195

48%

Marks & Spencer, Debenhams, Primark, Next, Topshop, Asda, Boots, H&M, Odeon

intu Braehead

£546m

1,127

100%

122

£27.2m

£250*

57%

Marks & Spencer, Primark, Apple, Next, H&M, Topshop, Hollister, Superdry, Sainsbury's, David's Bridal

Cribbs Causeway

£239m

1,075

33%

152

£12.2m

£305

77%

John Lewis, Marks & Spencer, Apple, Next, Topshop, Timberland, Jigsaw, Hobbs, Hugo Boss, H&M

 

In-town centres

 

intu Derby

£450m

1,300

100%

200

£29.7m

£110

47%

Marks & Spencer, Debenhams, Sainsbury's, Next, Boots, Topshop, Cinema de Lux, Zara, H&M

Manchester Arndale

£446m

1,600

48%

252

£22.2m

£275

61%

Harvey Nichols, Apple, Burberry, LK Bennett, Topshop, Next, Ugg, Hugo Boss, Superdry, Zara, Hollister

intu Victoria Centre

£361m

976

100%

113

£19.0m

£250

56%

House of Fraser, John Lewis, Next, Topshop, River Island, Boots, Urban Outfitters, Superdry, Office

St David's, Cardiff

£353m

1,391

50%

203

£16.2m

£212

71%

John Lewis, Debenhams, Marks & Spencer, Apple, Hollister, Hugo Boss, H&M, River Island, Hamleys, Primark

intu Watford

£336m

726

93%

137

£18.8m

£220

83%

John Lewis, Marks & Spencer, Apple, Zara, Primark, Next, Lakeland, Phase Eight, Lego, H&M, Topshop, New Look, MAC

intu Eldon Square

£318m

1,350

60%

140

£15.0m

£308

63%

John Lewis, Fenwick, Debenhams, Waitrose, Apple, Hollister, Topshop, Boots, River Island, Next, Marks & Spencer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual

 

 

 

 

Market

Size

 

Number

property

 

 

 

 

value

(sq m 000)

Ownership

of stores

income

 

 

Key tenants

 

 

 

 

 

 

 

 

 

 

Spanish centres

 

 

 

 

 

 

 

 

 

 

Puerto Venecia, Zaragoza

€249m

119

50%

202

€11.6m

 

 

El Corte Inglés, Primark, Ikea, Apple, Decathlon, Cinesa, H&M, Mediamarkt, Zara, Hollister,

Toys R Us, Fnac

intu Asturias

€139m

75

50%

137

€7.7m

 

 

Primark, Zara, H&M, Cinesa, Eroski, Mango, Springfield, Fnac, Mediamarkt, Desigual

 

 

 

 

 

 

 

 

 

 

* The amount presented is on the Scottish ITZA basis; the English equivalent is £335.

 

 

 

 

FINANCIAL REVIEW

 

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 the business primarily on a proportionally 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 gives 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

Rationale

measure used

 

 

 

 

 

Like-for-like amounts

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) has been included as it is considered to be a key measure of the Group's performance. The key difference from EPRA NAV is interest rate swaps not currently used for economic hedges of debt. These are excluded as, in our view, this provides a more meaningful measure of 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 below.

 

 

 

 

Underlying earnings

Underlying earnings is used to measure the Group's income performance. It excludes property and derivative valuation movements, exceptional items and related tax. We present these figures as they are considered to be a key measure of the Group's performance, an industry standard comparable measure and an indication of the extent to which dividend payments are supported by underlying operations. 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 below. The underlying profit statement is also presented in full in the other information section.

 

 

 

Overview

 

Underlying earnings increased by 7 per cent from £186.6 million last year to £200.0 million for the year ended 31 December 2016. This reflects our strong growth in like-for-like net rental income and the positive impact from our acquisition of the remaining 50 per cent of intu Merry Hill in June. Underlying earnings per share of 15.0 pence is an increase of 6 per cent on the prior year.

 

Profit for the year of £171.8 million has reduced by £345.8 million, impacted by property revaluations (2015: £517.6 million including a property revaluation surplus of £350.7 million).

 

NAV per share of 404 pence is unchanged from 2015, which when taking account of the dividends of 13.7 pence paid delivers a total financial return for the year of 3.4 per cent.

 

Our financing metrics remain strong mainly due to our recent refinancing activity. We have a debt to assets ratio of 43.7 per cent (31 December 2015: 43.1 per cent) which remains below our target maximum level of 50 per cent. Our interest cover ratio of 1.97x has increased in the year (31 December 2015: 1.91x) with satisfactory headroom above our target minimum level of 1.60x.

 

In the year, we issued and refinanced around £1 billion of debt, extending the maturity profile and reducing the margin where possible. We extended the £351.8 million term loan within the Secured Group Structure ('SGS') in June by one year to March 2021. In September we agreed a one-year extension to the £600 million revolving credit facility ('RCF') which is now in place until 2021 and in November we issued £375 million 2.875 per cent convertible bonds, maturing in 2022. Finally, in Spain we agreed a new €121 million facility for intu Asturias, drawn down in November and replacing the existing facility.

 

At 31 December 2016 we had cash and available facilities of £922.3 million which have increased in the year due to the convertible bond proceeds received (31 December 2015: £588.4 million).

 

We have also undergone several major transactions in the year, recycling capital into our super prime portfolio. In January we disposed of our interest in Equity One, a US venture, receiving £201.9 million and in December we disposed of intu Bromley, receiving initial consideration, net of debt repayment, of £81.5 million. In June we increased our focus on prime shopping centres, acquiring the remaining 50 per cent of intu Merry Hill for £409.7 million. As part of this we arranged a £500 million loan, with a 2018 maturity, replacing the £191 million facility that was secured on the 50 per cent originally held.

 

 

Income statement

 

 

 

 

 

2016

2015

 

 

 

 

 

 

 

 

 

Group

Group

 

 

Share of

including

including

 

 

joint

share of joint

share of joint

 

Group

ventures

ventures

ventures

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Underlying earnings

200.0

n/a

200.0

186.6

Adjusted for:

 

 

 

 

Revaluation of investment

 

 

 

 

and development property

(78.0)

14.2

(63.8)

350.7

Gain/(loss) on acquisition of businesses

34.6

-

34.6

(0.8)

(Loss)/gain on disposal of subsidiaries

(0.3)

-

(0.3)

2.2

Gain on sale of other investments

74.1

-

74.1

0.9

Administration expenses - exceptional

(2.5)

(0.4)

(2.9)

(1.5)

Exceptional finance costs

(32.0)

(0.9)

(32.9)

(31.4)

Change in fair value of financial instruments

(16.3)

(0.6)

(16.9)

5.3

Tax on the above

(16.5)

-

(16.5)

4.4

Share of joint ventures' items

12.3

(12.3)

-

-

Share of associates' items

1.1

-

1.1

5.8

Non-controlling interests in respect of the above

6.2

-

6.2

(3.8)

 

 

 

 

 

 

 

 

 

 

Profit for the year attributable to owners of

 

 

 

 

intu properties plc

182.7

n/a

182.7

518.4

 

 

 

 

 

 

 

 

 

 

Underlying earnings per share (pence)

15.0p

n/a

15.0p

14.2p

 

 

 

 

 

           

 

Underlying earnings increased to £200.0 million from £186.6 million at 31 December 2015, the key movements of which are shown in the chart below. Underlying earnings per share increased by 6 per cent to 15.0 pence.

 

Underlying earnings (£m) - Chart 1

 

Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/5722X_1-2017-2-22.pdf

 

 

Net rental income increased £19.2 million primarily due to like-for-like growth and the acquisition of the remaining 50 per cent of intu Merry Hill in June, partially offset by the impact of the disposal of 50 per cent of Puerto Venecia in September 2015.

 

Like-for-like net rental income increased by £14.7 million, 3.6 per cent driven by improving rental levels from new lettings and rent reviews, increased occupancy and the benefits of unit reconfigurations (see operating review).

 

Net other income includes a reduction of £6.7 million in dividend income following the sale of our interest in Equity One in January 2016.

 

Net finance costs are relatively unchanged reflecting the acquisition of the remaining 50 per cent of intu Merry Hill, offset by revised terms agreed on the SGS term loan and reduced drawdown on the RCF.

 

 

The profit attributable to owners of intu properties plc is £182.7 million, a reduction on the £518.4 million reported for the year ended 31 December 2015. This was primarily due to a deficit on property valuations of £63.8 million (2015: surplus of £350.7 million), as discussed in the operating review, as well as the change in fair value of financial instruments, a charge of £16.9 million (2015: credit of £5.3 million), partially offset by gains of £74.1 million on the sale of Equity One and £34.6 million on the acquisition of the remaining 50 per cent of intu Merry Hill.

 

Our investments in joint ventures contributed £32.1 million to the profit of the Group (2015: £108.6 million) including £19.8 million to underlying earnings (2015: £24.7 million) and a gain on property valuations of £14.2 million (2015: £85.8 million).

 

As detailed in the table below, our net rental income margin has improved to 88.1 per cent due to lower void costs, lower bad debts and reduced lease incentive write-offs. 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 15.0 per cent (see other information).

 

 

Year ended

Year ended

 

31 December

31 December

 

2016

2015

 

£m

£m

 

 

 

 

 

 

Gross rental income

532.6

514.0

Head rent payable

(25.4)

(22.4)

 

 

 

 

 

 

 

507.2

491.6

Net service charge expense and void rates

(26.0)

(27.0)

Bad debt and lease incentive write-offs

(2.5)

(3.9)

Property operating expense

(31.7)

(32.9)

 

 

 

 

 

 

Net rental income

447.0

427.8

 

 

 

 

 

 

Net rental income margin

88.1%

87.0%

 

 

 

 

 

 

EPRA cost ratio (excluding direct vacancy costs)

15.0%

16.0%

 

 

 

 

 

Balance sheet

 

 

 

 

 

2016

2015

 

 

 

 

 

 

 

 

 

Group

Group

 

Group

Share of

including

including

 

balance

joint

share of joint

share of joint

 

sheet

ventures

ventures

ventures

 

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Investment and development property

9,212.1

732.4

9,944.5

9,523.7

Investment in joint ventures

587.6

(587.6)

-

-

Investment in associates and other investments

80.7

-

80.7

265.0

Net external debt

(4,230.1)

(134.0)

(4,364.1)

(4,139.1)

Derivative financial instruments

(377.7)

(2.3)

(380.0)

(340.5)

Other assets and liabilities

(226.2)

(8.5)

(234.7)

(254.2)

 

 

 

 

 

 

 

 

 

 

Net assets

5,046.4

-

5,046.4

5,054.9

Non-controlling interest

(67.6)

-

(67.6)

(78.5)

 

 

 

 

 

 

 

 

 

 

Attributable to shareholders

4,978.8

-

4,978.8

4,976.4

Fair value of derivative financial instruments

 

 

 

 

(net of tax)

377.7

2.3

380.0

322.1

Other adjustments

78.6

(2.3)

76.3

96.5

Effect of dilution

2.6

-

2.6

16.2

 

 

 

 

 

 

 

 

 

 

Net assets (diluted, adjusted)

5,437.7

-

5,437.7

5,411.2

 

 

 

 

 

NAV per share (diluted, adjusted) (pence)

404p

-

404p

404p

 

 

 

 

 

           

 

The Group's net assets attributable to shareholders is relatively unchanged from 31 December 2015 at £4,978.8 million, while net assets (diluted, adjusted) have increased by £26.5 million from 31 December 2015 to £5,437.7 million.

 

NAV per share (diluted, adjusted) at 31 December 2016 is unchanged from the prior year at 404 pence, the key movements are shown in the chart below. This was driven principally by a 15 pence increase due to underlying earnings and a 3 pence increase due to the intu Merry Hill acquisition, offset by a deficit on revaluation of 4 pence and 14 pence from dividends paid in the year.

 

 

Net asset value per share (pence) - Chart 2

 

Click on, or paste the following link into your web browser, to view the associated PDF document.


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Investment and development property has increased by £420.8 million primarily due to our acquisition of the remaining 50 per cent of intu Merry Hill of £444.6 million, capital expenditure of £114.8 million, recognition of the leasehold on Charter Place of £55.9 million and a £49.8 million favourable foreign exchange movement, partially offset by the sale of intu Bromley of £179.4 million and a £63.8 million valuation deficit.

 

Investments in associates and other investments of £80.7 million primarily represent our interests in India, which comprises a 32 per cent interest in Prozone (£45.5 million), a shopping centre developer listed on the Indian stock market, and a direct interest in Empire (£19.7 million), owner and operator of a shopping centre in Aurangabad. See notes 16 and 17 for further details.

 

Net external debt of £4,364.1 million has increased by £225.0 million primarily from funding our acquisition of the remaining 50 per cent of intu Merry Hill. Cash including the Group's share of joint ventures has reduced by £9.8 million to £291.6 million and gross debt has increased by £215.2 million to £4,655.7 million.

 

Derivative financial instruments comprise the fair value of the Group's interest rate swaps. The net liability at 31 December 2016 is £380.0 million, an increase of £39.5 million in the year, with the UK 10-year bond yield reducing from 1.951 per cent to 1.235 per cent. Cash payments in the year totalled £41.8 million, £27.1 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 2016 these interest rate swaps have a market value liability of £253.2 million (31 December 2015: £239.1 million). It is estimated that we will be required to make cash payments on these interest rate swaps of around £28 million in 2017, reducing to below £20 million per annum in 2021.

 

Our net investment in joint ventures is £587.6 million at 31 December 2016 (31 December 2015: £991.9 million), which includes the Group's share of net assets, on an equity accounted basis, of £355.4 million (31 December 2015: £380.8 million) and loans to joint ventures of £232.2 million (31 December 2015: £611.1 million). The movement in the year primarily reflects the acquisition of the remaining 50 per cent of intu Merry Hill, which from the acquisition date is accounted for as a 100 per cent owned subsidiary rather than as a joint venture.

 

The non-controlling interest at 31 December 2016 relates primarily to our partner's 40 per cent stake in intu Metrocentre.

 

We are exposed to foreign exchange movements on our overseas investments and our policy is to ensure that the net exposure to foreign currency is less than 10 per cent of the Group's net assets attributable to shareholders. At 31 December 2016 the exposure was 7 per cent, lower than the 8 per cent at 31 December 2015 due to our disposal of Equity One in January partially offset by the reduced drawdown on the Euro component of the RCF.

 

 

Cash flow

 

 

 

 

 

Year ended

Year ended

 

31 December 2016

31 December 2015

 

£m

£m

 

 

 

 

 

 

Group cash flow as reported

 

 

Cash flows from operating activities

131.4

160.2

Cash flows from investing activities

(243.4)

(175.0)

Cash flows from financing activities

88.7

76.2

Foreign currency movements

1.4

(0.3)

 

 

 

 

 

 

Net (decrease)/increase in Group cash and cash equivalents

(21.9)

61.1

 

 

 

 

During 2016 cash and cash equivalents decreased by £21.9 million.

 

Cash flows from operating activities of £131.4 million is £28.8 million lower than 2015, primarily due to negative working capital movements from the timing of payments.

 

Cash flows from investing activities reflect cash outflows for our acquisition of the remaining 50 per cent of intu Merry Hill and capital expenditure during the year of £120.9 million. This is offset by cash inflows of £201.9 million received for the sale of our interest in Equity One and £80.5 million cash inflow from the sale of intu Bromley.

 

Cash flows from financing activities include net debt drawdowns of £242.5 million primarily to fund our acquisition of the remaining 50 per cent of intu Merry Hill and also includes the proceeds of the £375 million convertible bonds issued in November. We paid dividends in cash during the year of £152.6 million.

 

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 RCF as well as the £375 million and £300 million convertible bonds.

 

During 2016 we undertook the following financing activities:

·      arranged a £500 million loan secured on intu Merry Hill, with a 2018 maturity, replacing the £191 million facility that was secured on the 50 per cent originally held

·      extended our £351.8 million SGS term loan maturity by one year to March 2021

·      agreed a one-year extension to the RCF which is now in place until 2021

·      issued £375 million 2.875 per cent convertible bonds, maturing in 2022

·      agreed a new €121 million facility secured against intu Asturias; intu's share is €60.5 million

 

Since the year end, we have refinanced the intu Milton Keynes bank loan, with a new £140 million loan now maturing in 2019.

 

Debt maturity (£m) - Chart 3

Click on, or paste the following link into your web browser, to view the associated PDF document.

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The chart above illustrates that we have no major refinancing requirement due until the autumn of 2018 when we have two key maturities. We intend to refinance the £500 million intu Merry Hill bridging loan this summer and the £300 million convertible bonds will either be repaid or convert into equity.

 

 

 

Debt measures

 

 

 

 

31 December

31 December

 

2016

2015

 

 

 

 

 

 

Debt to assets

43.7%

43.1%

Interest cover

1.97x

1.91x

Weighted average debt maturity

7.1 years1

7.8 years

Weighted average cost of gross debt

4.3%

4.6%

Proportion of gross debt with interest rate protection

88%

86%

Cash and available facilities

£922.3m

£588.4m

 

 

 

1 Pro forma for the refinancing of intu Milton Keynes, completed February 2017.

Our debt to assets ratio has increased to 43.7 per cent since 31 December 2015 due to the acquisition of the remaining 50 per cent of intu Merry Hill partially offset by the sale of Equity One and the disposal of intu Bromley. The debt to assets ratio remains below our target maximum level of 50 per cent.

 

Interest cover of 1.97x has increased slightly during the year reflecting the growth in like-for-like net rental income and lower interest rates following recent debt refinancing and remains above our targeted minimum level of 1.60x.

 

The weighted average debt maturity decreased to 7.1 years, pro forma for the refinancing of intu Milton Keynes, with the benefit from the extension of the SGS term loan being offset by shorter-dated refinancing secured on intu Merry Hill. The weighted average cost of gross debt has decreased to 4.3 per cent (excluding the RCF) reflecting the rates achieved on recent refinancing activity and the cost on any unhedged debt.

 

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 has increased slightly in the year to 88 per cent within our policy range of between 75 per cent and 100 per cent.

 

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 £64 million equity cure.

 

Capital commitments

We have an aggregate commitment to capital projects of £257.0 million at 31 December 2016 (31 December 2015: £65.2 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

Like all Real Estate Investment Trusts ('REIT's), tax on property operating profits is paid at shareholder level to the UK Government rather than by the Group. REIT status brings with it the requirement to operate within the rules of the REIT regime (see glossary for further information).

 

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. As Chief Financial Officer, I am the Executive Committee member with executive responsibility for tax matters, with close involvement of executive and senior management.

 

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 2016 the total of such payments to tax authorities was £16.3 million, of which £15.7 million was in the UK and £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 £292.2 million in 2016 (2015: £297.2 million).

 

Dividends

The Directors are recommending a final dividend of 9.4 pence per share bringing the amount paid and payable in respect of 2016 to 14.0 pence, an increase of 0.3 pence from 2015. 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 2016 the Company has distributable reserves in excess of £1.1 billion, sufficient to cover around six years of dividends at the 2016 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

23 February 2017

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

Fully integrated and thorough risk analysis underpins our ability to achieve strategic objectives. The Board has undertaken a robust assessment of the principal risks we face, including those that would impact the business model, future performance, solvency or liquidity.

 

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 below. 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 mitigated in line with the Group's risk appetite.

 

The risk profile for 2016 has remained broadly in line with 2015 with no significant new risks identified nor substantial changes in existing risks. The main change from 2015 is the increased uncertainty in the UK economy and real estate markets following the EU referendum vote. Prior to the vote we reviewed the potential impacts in the context of our long-term funding, long-term lease structures and flexibility to adjust uncommitted investment. The period of uncertainty is likely to increase financial market volatility and may affect sentiment in the investment and occupier markets in which we operate, the range of funding sources available to us and broader consumer confidence and expenditure.

 

Key to strategic objectives:                                                                                           Change in level of risk:

 

1)

Optimising asset performance

+

Increased

2)

Delivering UK developments

3)

Making the brand count

 

=

Remained the same

4)

Seizing the growth opportunity in Spain

 

 

 

 

 

Risk and impact

Mitigation

 

2016 commentary

Property market

Strategic objectives affected: 1,2,3,4

 

 

 

 

 

 

 

 

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 prime assets and upgrading assets

·  covenant headroom monitored and stress-tested

·  make representation on key policies, for example business rates

 

 

 

 

 

 

+

Likelihood of macro-economic weakness has increased with the outcome of the UK's EU referendum vote. There is increased uncertainty in relation to many factors that impact the property investment and occupier markets which has increased investor caution

·  like-for-like property values unchanged in the year

·  substantial covenant headroom

·  no significant near-term debt maturities and average unexpired term of 7.1 years

·  long-term lease structures with average unexpired term of 7.7 years

 

 

 

 

 

 

 

 

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

·  regular monitoring of tenant strength and diversity

·  upgrading assets to meet demand, for example, increased leisure offering

·  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

=

Likelihood and severity of potential impact are unchanged in 2016 with intu's strategy continuing to deliver strong footfall numbers and occupancy

·  significant progress on planning and pre-letting of near-term pipeline with a focus on leisure and catering

·  digital investment to improve relevance as shopping habits change

·  occupancy remains strong at 96 per cent

·  footfall growth which continues to be ahead of benchmark

 

 

 

 

 

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

 

 

 

 

 

Risk and impact

Mitigation

 

2016 commentary

Operations

Strategic objectives affected: 1,3

 

 

 

 

 

 

 

 

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

=

Likelihood of potential impact has not changed significantly during 2016, however severity impacted by new enforcement structure

·  maintenance of OHSAS 18001 certification, demonstrating consistent health and safety management process and procedures across the portfolio

·  work continuing towards achieving ISO 9001, 14001 and 55001 accreditation

 

 

 

 

 

 

 

 

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 and tested

·  data committee

·  monitoring of regulatory environment and best practice

=

Likelihood slightly increased with a number of recent high profile hacks, but severity of potential impact has reduced by significant development of tools and controls in 2016

·  ongoing Group-wide cybersecurity project with investment in tools, consultancy and staff to mitigate impact of threats from evolving cybersecurity landscape 

·  external benchmarking of cybersecurity landscape

 

 

 

 

 

 

 

 

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

·  strong business process and procedures, supported by regular training and exercises, designed to adapt and respond to changes in risk levels

·  annual audits of operational standards carried out internally and by external agencies

·  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

·  strong relationships and frequent liaison with police, NaCTSO and other agencies

·  NaCTSO approved to train staff in counter-terrorism awareness program

=

Overall likelihood and severity of potential impact unchanged

·  national threat level remains at Severe

·  major scenario exercises held at three intu shopping centres with involvement of multiple external agencies

·  operating procedures in place for the introduction of further security measures if required

 

 

 

 

 

 

 

Financing

Strategic objectives affected: 2,4

 

 

 

 

 

 

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 long debt maturity profile and diversification of sources of finance

·  consideration of financing plans including potential for recycling of capital before commitment to transactions and developments

·  strong relationships with lenders, shareholders and partners

·  focus on prime assets

 

 +

Macro-economic events during 2016 and the uncertainty caused by them mean the increased risk of reduced availability remains, however, severity of potential impact unchanged from 2015. Regular refinancing activity continuing to evidence the availability of funding

·  new £500 million loan secured on intu Merry Hill

·  disposal of intu Bromley for £82 million

·  new £375 million convertible debt issue

·  sale of Equity One for £202 million

 

 

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

 

 

 

 

 

Risk and impact

Mitigation

 

2016 commentary

 

 

 

 

Developments and acquisitions

Strategic objectives affected: 2,4

 

 

 

 

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 agreed with clear apportionment of risk

·  significant levels of pre-lets exchanged prior to scheme development

=

Likelihood and severity of potential impact have remained unchanged in 2016 as the Group has progressed work on its development pipeline

·  signed fixed price contract for the substantial portion of the £180 million extension of intu Watford

·  completed fully-let restaurant projects at intu Metrocentre and intu Eldon Square

·  detailed appraisal work and significant pre-lets ahead of starting major development projects

 

 

 

 

 

 

 

 

Acquisitions

Acquisitions fail to create shareholder value

 

 

·  research and third party due diligence undertaken for transactions

·  local partner and advisors in Spain with specialist market knowledge

·  where appropriate, investment risk reduced through financing and joint venture investments

=

Likelihood and severity of potential impact have remained unchanged

·  detailed understanding of intu Merry Hill prior to acquisition of remaining 50 per cent as existing part-owner and asset manager

 

 

 

 

 

 

 

Brand

Strategic objectives affected: 1,2,3,4

 

 

 

 

 

 

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

=

Likelihood and severity of potential impact unchanged in 2016 as the brand became more established in the UK and Spain

·  continuing media interest in intu and our opinions

·  strengthened team following establishment of Madrid office has increased in-house capacity

·  net promoter score consistent with 2015

 

 

 

 

 

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Group's annual report for the year ended 31 December 2016 contains the following statement of Directors' responsibilities.  Certain parts of the annual report are not included within this announcement.

 

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 accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and the Group's position and performance, business model and strategy.

 

Each of the Directors, whose names and functions are listed in the governance section of the annual report confirm that, to the best of their knowledge:

 

(a)    the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group

 

(b)    the Directors' report contained in the governance section of the annual 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 23 February 2017

 

 

 

 

 

David Fischel

Chief Executive

 

 

 

 

Matthew Roberts

Chief Financial Officer

 

 

 

 

Consolidated income statement
for the year ended 31 December 2016

 

 

 

2016

2015

 

Notes

£m

£m

 

 

 

 

Revenue

2

594.3

571.6

 

 

 

 

 

 

 

 

Net rental income

2

406.1

381.8

Net other income

3

0.6

6.9

Revaluation of investment and development property

14

(78.0)

264.9

(0.8)

Gain/(loss) on acquisition of businesses

4

34.6

(0.8)

(Loss)/gain on disposal of subsidiaries

27

(0.3)

2.2

Gain on sale of other investments

17

74.1

0.9

Administration expenses - ongoing

 

(37.8)

(37.3)

Administration expenses - exceptional

5

(2.5)

(1.0)

 

 

 

 

 

 

 

 

Operating profit

 

396.8

617.6

 

 

 

 

 

 

 

 

Finance costs

6

(202.9)

(206.6)

Finance income

7

14.9

18.7

Other finance costs

8

(37.9)

(37.3)

Change in fair value of financial instruments

9

(16.3)

6.0

 

 

 

 

 

 

 

 

Net finance costs

 

(242.2)

(219.2)

 

 

 

 

 

 

 

 

Profit before tax, joint ventures and associates

 

154.6

398.4

Share of post-tax profit of joint ventures

15

32.1

108.6

Share of post-tax profit of associates

16

1.6

6.0

 

 

 

 

 

 

 

 

Profit before tax

 

188.3

513.0

 

 

 

 

 

 

 

 

Current tax

10

-

(0.4)

Deferred tax

10

(16.5)

5.0

 

 

 

 

 

 

 

 

Taxation

10

(16.5)

4.6

 

 

 

 

 

 

 

 

Profit for the year

 

171.8

517.6

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

Owners of intu properties plc

 

182.7

518.4

Non-controlling interests

 

(10.9)

(0.8)

 

 

 

 

 

 

 

 

 

 

171.8

517.6

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

12

13.7p

39.3p

Diluted earnings per share

12

11.2p

37.5p

 

 

 

 

 

Details of underlying earnings are presented in the underlying profit statement in the other information section. Underlying earnings per share are shown in note 12(c).

 

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2016

 

 

 

2016

2015

 

Notes

£m

£m

 

 

 

 

Profit for the year

 

171.8

517.6

 

 

 

 

Other comprehensive income

 

 

 

Items that may be reclassified subsequently to the income statement:

 

 

 

Revaluation of other investments

17

0.4

12.8

Exchange differences

 

31.6

7.6

Tax relating to components of other comprehensive income

10

(0.2)

(5.0)

 

 

 

 

 

 

 

 

Total items that may be reclassified subsequently to the income statement

 

31.8

15.4

 

 

 

 

 

 

 

 

Transferred to the income statement:

 

 

 

On sale of other investments

17

(77.0)

(0.6)

Tax on sale of other investments

10

16.7

-

 

 

 

 

 

 

 

 

Total transferred to the income statement

 

(60.3)

(0.6)

 

 

 

 

 

 

 

 

Other comprehensive (loss)/income for the year

 

(28.5)

14.8

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

143.3

532.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to:

 

 

 

Owners of intu properties plc

 

154.2

533.2

Non-controlling interests

 

(10.9)

(0.8)

 

 

 

 

 

 

 

 

 

 

143.3

532.4

 

 

 

 

 

 

 

 

Consolidated balance sheet

as at 31 December 2016

 

 

 

2016

2015

 

Notes

£m

£m

 

 

 

 

Non-current assets

 

 

 

Investment and development property

14

9,212.1

8,403.9

Plant and equipment

 

7.6

5.0

Investment in joint ventures

15

587.6

991.9

Investment in associates

16

65.2

54.7

Other investments

17

15.5

210.3

Goodwill

 

4.0

4.0

Trade and other receivables

18

99.1

89.3

 

 

 

 

 

 

 

 

 

 

9,991.1

9,759.1

 

 

 

 

 

 

 

 

Current assets

 

 

 

Trade and other receivables

18

123.4

108.8

Derivative financial instruments

 

-

3.2

Cash and cash equivalents

19

254.7

275.8

 

 

 

 

 

 

 

 

 

 

378.1

387.8

 

 

 

 

 

 

 

 

Total assets

 

10,369.2

10,146.9

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

20

(281.0)

(275.5)

Current tax liabilities

 

(0.3)

(0.4)

Borrowings

21

(142.4)

(139.3)

Derivative financial instruments

 

(37.0)

(12.0)

 

 

 

 

 

 

 

 

 

 

(460.7)

(427.2)

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

21

(4,520.2)

(4,332.3)

 

 

Derivative financial instruments

 

(340.7)

(329.7)

Other payables

 

(1.2)

(2.8)

 

 

 

 

 

 

 

 

 

 

(4,862.1)

(4,664.8)

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

(5,322.8)

(5,092.0)

 

 

 

 

 

 

 

 

 

 

 

 

Net assets

 

5,046.4

5,054.9

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

24

677.5

672.3

Share premium

24

1,327.4

1,303.1

Treasury shares

25

(40.8)

(43.3)

Other reserves

 

344.3

372.8

Retained earnings

 

2,670.4

2,671.5

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to owners of intu properties plc

 

4,978.8

4,976.4

Non-controlling interests

 

67.6

78.5

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

5,046.4

5,054.9

 

 

 

 

 

 

Consolidated statements of changes in equity

for the year ended 31 December 2016

 

 

Attributable to owners of intu properties plc

 

 

 

 

 

 

 

 

Non-

 

 

Share

Share

Treasury

Other

Retained

 

controlling

Total

 

capital

premium

shares

reserves

earnings

Total

interests

equity

 

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

At 1 January 2016

672.3

1,303.1

(43.3)

372.8

2,671.5

4,976.4

78.5

5,054.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

-

-

-

-

182.7

182.7

(10.9)

171.8

Other comprehensive income:

 

 

 

 

 

 

 

 

Revaluation of other

 

 

 

 

 

 

 

 

investments (note 17)

-

-

-

0.4

-

0.4

-

0.4

Exchange differences

-

-

-

31.6

-

31.6

-

31.6

Tax relating to components

 

 

 

 

 

 

 

 

of other comprehensive

 

 

 

 

 

 

 

 

income (note 10)

-

-

-

16.5

-

16.5

-

16.5

Transferred to income

 

 

 

 

 

 

 

 

statement on sale of other

 

 

 

 

 

 

 

 

investments

-

-

-

(77.0)

-

(77.0)

-

(77.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive

 

 

 

 

 

 

 

 

income for the year

-

-

-

(28.5)

182.7

154.2

(10.9)

143.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares issued

 

 

 

 

 

 

 

 

(note 24)

5.2

24.3

-

-

-

29.5

-

29.5

Dividends (note 11)

-

-

-

-

(182.5)

(182.5)

-

(182.5)

Share-based payments

-

-

-

-

1.9

1.9

-

1.9

Acquisition of treasury shares

-

-

(0.7)

-

-

(0.7)

-

(0.7)

Disposal of treasury shares

-

-

3.2

-

(3.2)

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.2

24.3

2.5

-

(183.8)

(151.8)

-

(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

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated statements of changes in equity (continued)

for the year ended 31 December 2016

 

 

Attributable to owners of intu properties plc

 

 

 

 

 

 

 

 

Non-

 

 

Share

Share

Treasury

Other

Retained

 

controlling

Total

 

capital

premium

shares

reserves

earnings

Total

interests

equity

 

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

At 1 January 2015

658.4

1,222.0

(45.1)

358.0

2,330.7

4,524.0

72.8

4,596.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit/(loss) for the year

-

-

-

-

518.4

518.4

(0.8)

517.6

Other comprehensive income:

 

 

 

 

 

 

 

 

Revaluation of other

 

 

 

 

 

 

 

 

investments (note 17)

-

-

-

12.8

-

12.8

-

12.8

Exchange differences

-

-

-

7.6

-

7.6

-

7.6

Tax relating to components

 

 

 

 

 

 

 

 

of other comprehensive

 

 

 

 

 

 

 

 

income (note 10)

-

-

-

(5.0)

-

(5.0)

-

(5.0)

Transferred to income

 

 

 

 

 

 

 

 

statement on sale of other

 

 

 

 

 

 

 

 

investments

-

-

-

(0.6)

-

(0.6)

-

(0.6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive

 

 

 

 

 

 

 

 

income for the year

-

-

-

14.8

518.4

533.2

(0.8)

532.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares issued

13.9

81.1

-

-

-

95.0

-

95.0

Dividends (note 11)

-

-

-

-

(179.4)

(179.4)

-

(179.4)

Share-based payments

-

-

-

-

4.8

4.8

-

4.8

Acquisition of treasury shares

-

-

(1.6)

-

-

(1.6)

-

(1.6)

Disposal of treasury shares

-

-

3.4

-

(3.0)

0.4

-

0.4

Non-controlling interest

 

 

 

 

 

 

 

 

additions

-

-

-

-

-

-

6.5

6.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13.9

81.1

1.8

-

(177.6)

(80.8)

6.5

(74.3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

672.3

1,303.1

(43.3)

372.8

2,671.5

4,976.4

78.5

5,054.9

 

 

 

 

 

 

 

 

 

 

 

Consolidated statement of cash flows

for the year ended 31 December 2016

 

 

 

2016

2015

 

Notes

£m

£m

 

 

 

 

Cash generated from operations

29

355.9

366.5

Interest paid

 

(233.0)

(222.5)

Interest received

 

8.5

16.6

Taxation

 

-

(0.4)

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

131.4

160.2

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase and development of property, plant and equipment

 

(120.9)

(100.8)

Sale of property

 

-

1.8

Acquisition of businesses net of cash acquired

26

(405.5)

(203.1)

Sale of other investments

 

201.9

4.7

Additions to other investments

 

(14.1)

-

Additions to investment in associates

 

-

(10.0)

Disposal of subsidiaries net of cash sold with business

27

80.5

81.0

Repayment of capital by joint ventures

15

-

25.6

Loan advances to joint ventures

15

(1.2)

(0.8)

Loan repayments by joint ventures

15

12.7

17.6

Distributions from joint ventures

15

3.2

9.0

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

(243.4)

(175.0)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

Issue of ordinary shares

 

0.3

22.0

Acquisition of treasury shares

 

(0.7)

(1.6)

Sale of treasury shares

 

-

0.4

Non-controlling interest funding received

 

-

6.5

Cash transferred (to)/from restricted accounts

 

(0.8)

14.9

Borrowings drawn

 

962.9

329.2

Borrowings repaid

 

(720.4)

(190.3)

Equity dividends paid

 

(152.6)

(104.9)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

88.7

76.2

 

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and cash equivalents

 

1.4

(0.3)

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(21.9)

61.1

 

 

 

 

 

 

 

 

Cash and cash equivalents at 1 January

19

273.6

212.5

 

 

 

 

 

 

 

 

Cash and cash equivalents at 31 December

19

251.7

273.6

 

 

 

 

 

 

 

                                                                                              

 

 

Notes

 

1 Accounting convention and basis of preparation

The financial information presented does not constitute the Group's consolidated financial statements for either the year ended 31 December 2016 or the year ended 31 December 2015, but is derived from those financial statements. The Group's statutory financial statements for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company's annual general meeting. The auditors' reports on both the 2015 and 2016 financial statements were not qualified or modified; did not draw attention to any matters by way of an emphasis of matter; and did not contain any statement under Section 498 of the Companies Act 2006.

The 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 financial statements have been prepared under the historical cost convention as modified by the revaluation of property, available-for-sale investments, and certain other financial assets and liabilities that have been measured at fair value. A summary of the significant accounting policies applied is set out in note 2 of the Group's consolidated financial statements.

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 not had an impact on the financial statements.

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, all of which are not expected to have a material impact on the financial statements:

 

-     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 main area of impact for the Group is considered to relate to impairment provisioning which may affect measurement and presentation of trade receivables. We believe that the current provisioning approach to trade receivables is expected to be materially similar to the revised guidance

-     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 rent receivable. This is not expected to have a material impact on the financial statements, but may result in changes to presentation and disclosure

-     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

Use of estimates and assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. In particular, significant judgement is required in the use of estimates and assumptions in the valuation and accounting for investment and development property and derivative financial instruments. Additional detail on these two areas is provided in the relevant accounting policy in note 2 and in notes 18 and 33 to the Group's consolidated financial statements.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review. In addition, note 33 to the Group's consolidated financial statements includes the Group's risk management objectives, details of its financial instruments and hedging activities, its exposures to liquidity risk and details of its capital structure.

The Group prepares regular forecasts and projections which include sensitivity analysis taking into account a number of downside risks to the forecast including reasonably possible changes in trading performance and asset values and assesses the potential impact of these on the Group's liquidity position and available resources.

In preparing the most recent projections, factors taken into account include £291.6 million of cash (including the Group's share of cash in joint ventures of £36.9 million) and £630.7 million of undrawn facilities at 31 December 2016. The Group's weighted average debt maturity of over seven 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.

 

 

Notes (continued)
 

2 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 United Kingdom and Spain. Although management review and monitor the performance of the business principally on a centre-by-centre basis, the operating segments are consistent with the strategic and operational management 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 given below:

 

 

 

 

2016

 

 

 

 

 

 

 

Group including

 

 

 

share of joint ventures

Less share of

Group

 

UK

Spain

Total

joint ventures

total

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

Rent receivable

516.7

15.9

532.6

(48.1)

484.5

Service charge income

107.6

3.5

111.1

(9.5)

101.6

Facilities management income from joint ventures

5.1

-

5.1

3.1

8.2

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

629.4

19.4

648.8

(54.5)

594.3

Rent payable

(25.4)

-

(25.4)

1.1

(24.3)

Service charge costs

(123.5)

(3.7)

(127.2)

10.6

(116.6)

Facilities management costs recharged to joint ventures

(5.1)

-

(5.1)

(3.1)

(8.2)

Other non-recoverable costs

(42.3)

(1.8)

(44.1)

5.0

(39.1)

 

 

 

 

 

 

 

 

 

 

 

 

Net rental income

433.1

13.9

447.0

(40.9)

406.1

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

Group including

 

 

 

share of joint ventures

Less share of

Group

 

UK

Spain

Total

joint ventures

total

 

£m

£m

£m

£m

£m

 

 

 

 

 

 

Rent receivable

492.5

21.5

514.0

(53.0)

461.0

Service charge income

103.0

4.5

107.5

(10.6)

96.9

Facilities management income from joint ventures

7.9

-

7.9

5.8

13.7

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

603.4

26.0

629.4

(57.8)

571.6

Rent payable

(22.4)

-

(22.4)

1.1

(21.3)

Service charge costs

(116.7)

(4.8)

(121.5)

11.7

(109.8)

Facilities management costs recharged to joint ventures

(7.9)

-

(7.9)

(5.8)

(13.7)

Other non-recoverable costs

(48.0)

(1.8)

(49.8)

4.8

(45.0)

 

 

 

 

 

 

 

 

 

 

 

 

Net rental income

408.4

19.4

427.8

(46.0)

381.8

 

 

 

 

 

 

There were no significant transactions within net rental income between operating segments.

An analysis of investment and development property, capital expenditure and revaluation (deficit)/surplus is presented below:

 

Investment and

 

 

Revaluation

 

development property

Capital expenditure

 (deficit)/surplus

 

2016

2015

2016

2015

2016

2015

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

United Kingdom

9,537.5

9,222.3

92.5

75.6

(97.4)

342.2

Spain

407.0

301.4

22.3

47.9

33.6

8.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group including share of joint ventures

9,944.5

9,523.7

114.8

123.5

(63.8)

350.7

Less share of joint ventures

(732.4)

(1,119.8)

(1.2)

(2.5)

(14.2)

(85.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

9,212.1

8,403.9

113.6

121.0

(78.0)

264.9

 

 

 

 

 

 

 

 

 

 

Notes (continued)
 

2 Segmental reporting (continued)

The Group's geographical analysis of non-current assets is set out 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. 

 

 

Re-presented1

 

2016

2015

 

£m

£m

 

 

 

United Kingdom

9,648.6

9,305.3

Spain

276.7

188.8

United States

-

209.4

India

65.8

55.6

 

 

 

 

 

 

 

9,991.1

9,759.1

 

 

 

1 The comparative has been re-presented to show investment in Spanish joint ventures of £141.9 million under Spain, previously under United Kingdom.

 

3 Net other income

 

2016

2015

 

£m

£m

 

 

 

Dividends received from other investments

-

6.7

Management fees

3.3

3.0

intu Digital

(2.7)

(2.8)

 

 

 

 

 

 

Net other income

0.6

6.9

 

 

 

 


4 Gain/(loss) on acquisition of businesses

The gain on acquisition of businesses in the year of £34.6 million relates to the acquisition of the remaining 50 per cent of intu Merry Hill (see note 26). The 2015 loss consisted of a gain on the acquisition of Puerto Venecia, Zaragoza of £0.8 million and an adjustment increasing the contingent consideration relating to the 2012 acquisition of StyleMeTV Limited (renamed IntuDigital Limited) resulting in the recognition of a loss of £1.6 million.

 

 

5 Administration expenses - exceptional

Exceptional administration expenses (see glossary for definition of exceptional items) in the year totalled £2.5 million (2015: £1.0 million). 2016 costs relate to fees on corporate transactions, principally the acquisition of the remaining 50 per cent of intu Merry Hill. 2015 costs related principally to fees on the acquisition of Puerto Venecia, Zaragoza.

 

 

6 Finance costs

 

2016

2015

 

£m

£m

 

 

 

On bank loans and overdrafts

189.2

195.4

On convertible bonds (note 22)

9.3

7.5

On obligations under finance leases

4.4

3.7

 

 

 

 

 

 

Finance costs

202.9

206.6

 

 

 

Finance costs of £2.1 million were capitalised in the year ended 31 December 2016 (2015: £2.1 million).

 

7 Finance income

 

2016

2015

 

£m

£m

 

 

 

Interest receivable on loans to joint ventures

13.4

17.1

Other finance income

1.5

1.6

 

 

 

 

 

 

Finance income

14.9

18.7

 

 

 

 

 

 

 

Notes (continued)

 

 

8 Other finance costs

 

2016

2015

 

£m

£m

 

 

 

Amortisation of Metrocentre compound financial instrument

5.9

5.9

Payments on unallocated interest rate swaps and other costs1

34.7

28.6

Foreign currency movements1

(2.7)

2.8

 

 

 

 

 

 

Other finance costs

37.9

37.3

 

 

 

1 Amounts totalling £32.0 million in the year ended 31 December 2016 (2015: £31.4 million) are treated as exceptional items, as defined in the glossary, due to their nature and therefore excluded from underlying earnings (see note 12(c)). These finance costs include termination of interest rate swaps on repayment of debt, payments on unallocated interest rate swaps, foreign currency movements and other fees. 

 

9 Change in fair value of financial instruments

 

2016

2015

 

£m

£m

 

 

 

Loss/(gain) on derivative financial instruments

47.2

(6.8)

(Gain)/loss on convertible bonds designated as at fair value through profit or loss (note 22)

(30.9)

0.8

 

 

 

 

 

 

Change in fair value of financial instruments

16.3

(6.0)

 

 

 

Included within the change in fair value of derivative financial instruments are gains totalling £41.8 million (2015: £44.1 million) resulting from the payment of obligations under derivative financial instruments during the year. Of these £27.1 million related to unallocated swaps and £0.8 million to the termination of swaps. In 2015 £26.5 million related to unallocated swaps.

 

10 Taxation

Taxation for the year:

 

2016

2015

 

£m

£m

 

 

 

Overseas taxation

0.1

0.6

UK taxation - adjustment in respect of prior years

(0.1)

(0.2)

 

 

 

 

 

 

Current tax

-

0.4

 

 

 

 

 

 

Deferred tax:

 

 

    On investment and development property

-

(0.8)

    On other investments

(2.3)

(0.2)

    On derivative financial instruments

16.4

(2.8)

    On other temporary differences

2.4

(1.2)

 

 

 

 

 

 

Deferred tax

16.5

(5.0)

 

 

 

 

 

 

Total tax charge/(credit)

16.5

(4.6)

 

 

 

The tax credit relating to components of other comprehensive income of £16.5 million (2015: charge of £5.0 million) relates entirely to deferred tax in respect of other investments.

The tax charge/(credit) for 2016 and 2015 are lower than the standard rate of corporation tax in the UK. The differences are explained below:

 

2016

2015

 

£m

£m

 

 

 

Profit before tax, joint ventures and associates

154.6

398.4

 

 

 

 

 

 

Profit before tax multiplied by the standard rate in the UK of 20% (2015: 20.25%)

30.9

80.7

Exempt property rental profits and revaluations

(20.1)

(90.3)

 

 

 

 

 

 

 

10.8

(9.6)

Additions and disposals of property and investments

(6.8)

(0.2)

Prior year corporation tax items

(0.1)

(0.2)

Non-deductible and other items

0.5

(0.4)

Overseas taxation

(0.6)

0.6

Unprovided deferred tax

12.7

5.2

 

 

 

 

 

 

Total tax charge/(credit)                                                                                                                                     

16.5

(4.6)

 

 

 

Details of deferred tax balances are given in note 23.

 

Notes (continued)

 

 

11 Dividends

 

2016

2015

 

£m

£m

 

 

 

Ordinary shares:

 

 

Prior year final dividend paid of 9.1 pence per share (2015: 9.1 pence per share)              

121.1

118.3

Interim dividend paid of 4.6 pence per share (2015: 4.6 pence per share)

61.4

61.1

 

 

 

 

 

 

Dividends declared

182.5

179.4

 

 

 

 

 

 

Proposed final dividend of 9.4 pence per share

127.4

 

 

 

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.

In 2015, the Scrip Dividend Scheme resulted in 21,491,924 new ordinary shares of 50 pence each being issued and £73.0 million of cash being retained in the business.

Details of the shares in issue and dividends waived are given in notes 24 and 25 respectively.

 

12 Earnings per share

(a) Earnings per share

Basic and diluted earnings per share as calculated in accordance with IAS 33 Earnings Per Share:

 

2016

2015

 

Earnings

Shares

Pence per

Earnings

Shares

Pence per

 

£m

million

share

£m

million

share

 

 

 

 

 

 

 

Profit for the year attributable to owners

 

 

 

 

 

 

of intu properties plc

182.7

 

 

518.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share1

182.7

1,333.5

13.7p

518.4

1,318.1

39.3p

Dilutive convertible bonds, share options and share awards

(21.6)

107.9

 

8.4

87.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

161.1

1,441.4

11.2p

526.8

1,405.4

37.5p

 

 

 

 

 

 

 

1 The weighted average number of shares used for the calculation of basic earnings per share has been adjusted to remove shares held in the Employee Share Ownership Plan ('ESOP').

 

 

 

Notes (continued)

 

12 Earnings per share (continued)

(b) Headline earnings per share

Headline earnings per share has been calculated and presented as required by the Johannesburg Stock Exchange listing requirements.

 

2016

2015

 

 

 

 

 

 

Gross

Net1

Gross

Net1

 

£m

£m

£m

£m

 

 

 

 

 

Basic earnings

 

182.7

 

518.4

Adjusted for:

 

 

 

 

Revaluation of investment and development property (note 14)

78.0

71.8

(264.9)

(261.9)

Gain on acquisition of businesses

(34.6)

(34.6)

(0.8)

(0.8)

Loss/(gain) on disposal of subsidiaries (note 27)

0.3

0.3

(2.2)

(2.2)

Gain on sale of other investments (note 17)

(74.1)

(74.1)

(0.9)

(0.9)

Share of joint ventures' items

(14.2)

(14.2)

(85.8)

(85.1)

Share of associates' items

(1.1)

(1.1)

(0.3)

(0.3)

 

 

 

 

 

 

 

 

 

 

Headline earnings

 

130.8

 

167.2

Dilution2

 

(21.6)

 

8.4

 

 

 

 

 

 

 

 

 

 

Diluted headline earnings

 

109.2

 

175.6

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares (million)

 

1,333.5

 

1,318.1

Dilution2

 

107.9

 

87.3

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number of shares (million)

 

1,441.4

 

1,405.4

 

 

 

 

 

 

 

 

 

 

Headline earnings per share (pence)

 

9.8p

 

12.7p

 

 

 

 

 

 

 

 

 

 

Diluted headline earnings per share (pence)

 

7.6p

 

12.5p

 

 

 

 

 

 

1 Net of tax and non-controlling interests.

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.

 

(c) Underlying earnings per share

Underlying earnings per share is a non-GAAP measure but has been included as it is considered to be a key measure of the Group's performance and an indication of the extent to which dividend payments are supported by underlying earnings (see underlying profit statement in the other information section). Underlying earnings is defined as an alternative performance measure in the financial review.

 

2016

2015

 

Earnings

Shares

Pence per

Earnings

Shares

Pence per

 

£m

million

share

£m

million

share

 

 

 

 

 

 

 

Basic earnings per share (per note 12(a))

182.7

1,333.5

13.7p

518.4

1,318.1

39.3p

Adjusted for:

 

 

 

 

 

 

Revaluation of investment and development

 

 

 

 

 

 

property (note 14)

78.0

 

5.9p

(264.9)

 

(20.1)p

(Gain)/loss on acquisition of businesses (note 26)

(34.6)

 

(2.6)p

0.8

 

0.1p

Loss/(gain) on disposal of subsidiaries (note 27)

0.3

 

-

(2.2)

 

(0.2)p

Gain on sale of other investments (note 17)

(74.1)

 

(5.6)p

(0.9)

 

(0.1)p

Administration expenses - exceptional (note 5)

2.5

 

0.2p

1.0

 

0.1p

Exceptional finance costs (note 8)

32.0

 

2.4p

31.4

 

2.4p

Change in fair value of financial instruments (note 9)

16.3

 

1.2p

(6.0)

 

(0.4)p

Tax on the above

16.5

 

1.3p

(5.1)

 

(0.4)p

Share of joint ventures' items

(12.3)

 

(0.9)p

(83.9)

 

(6.4)p

Share of associates' items

(1.1)

 

(0.1)p

(5.8)

 

(0.4)p

Non-controlling interests in respect of the above

(6.2)

 

(0.5)p

3.8

 

0.3p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying earnings per share

200.0

1,333.5

15.0p

186.6

1,318.1

14.2p

Dilutive convertible bonds, share options and share awards

9.3

107.9

 

7.5

87.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying, diluted earnings per share

209.3

1,441.4

14.5p

194.1

1,405.4

13.8p

 

 

 

 

 

 

 

 

 

 

 

 

Notes (continued)

 

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 included as it is considered to be a key measure of the Group's performance. The key difference from EPRA NAV is interest rate swaps not currently used for economic hedges of debt. These are excluded as, in our view, this provides a more meaningful measure of the Group's performance. NAV (diluted, adjusted) is defined as an alternative performance measure in the financial review.

 

 

 

 

2016

2015

 

Net

 

NAV per

Net

 

NAV per

 

assets

Shares

share

assets

Shares

share

 

£m

million

pence

£m

million

pence

 

 

 

 

 

 

 

NAV per share attributable to owners of

 

 

 

 

 

 

intu properties plc 1

4,978.8

1,343.0

371p

4,976.4

1,331.9

374p

Dilutive convertible bonds, share options and awards

2.6

3.5

 

16.2

6.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted NAV per share

4,981.4

1,346.5

370p

4,992.6

1,338.3

373p

Adjusted for:

 

 

 

 

 

 

Fair value of derivative financial instruments (net of tax)

377.7

 

28p

322.1

 

24p

Deferred tax on investment and development

 

 

 

 

 

 

property and other investments

0.1

 

-

18.9

 

1p

Share of joint ventures' items

7.2

 

1p

6.3

 

1p

Non-controlling interest recoverable balance not

 

 

 

 

 

 

recognised

71.3

 

5p

71.3

 

5p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NAV per share (diluted, adjusted)

5,437.7

1,346.5

404p

5,411.2

1,338.3

404p

 

 

 

 

 

 

 

1 The number of shares used has been adjusted to remove shares held in the ESOP.

(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.

 

2016

2015

 

Net

 

NAV per

Net

 

NAV per

 

assets

Shares

share

assets

Shares

share

 

£m

million

pence

£m

million

pence

 

 

 

 

 

 

 

NAV per share (diluted, adjusted)

5,437.7

1,346.5

404p

5,411.2

1,338.3

404p

Fair value of derivative financial instruments (net of tax)

(377.7)

 

(28)p

(322.1)

 

(24)p

Excess of fair value of borrowings over carrying value

(375.0)

 

(28)p

(194.4)

 

(14)p

Deferred tax on investment and development

 

 

 

 

 

 

property and other investments

(0.1)

 

-

(18.9)

 

(1)p

Share of joint ventures' items

(9.4)

 

(1)p

(8.1)

 

(1)p

Non-controlling interests in respect of the above

23.4

 

2p

11.0

 

1p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NNNAV per share (diluted, adjusted)

4,698.9

1,346.5

349p

4,878.7

1,338.3

365p

 

 

 

 

 

 

 

 

 

 

 

 

Notes (continued)


 

14 Investment and development property

 

 

Freehold

Leasehold

Total

 

 

£m

£m

£m

 

 

 

 

 

At 1 January 2015

 

5,662.6

2,357.0

8,019.6

Acquisition of Puerto Venecia, Zaragoza

 

344.2

-

344.2

Additions

 

84.4

36.6

121.0

Disposals

 

(1.5)

(0.3)

(1.8)

Disposal of subsidiaries1

 

(331.7)

-

(331.7)

Surplus on revaluation

 

223.6

41.3

264.9

Foreign exchange movements

 

(12.3)

-

(12.3)

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

 

5,969.3

2,434.6

8,403.9

Acquisition of intu Merry Hill (note 26)

 

889.3

-

889.3

Additions

 

47.6

66.0

113.6

Recognition of leasehold on Charter Place

 

-

55.9

55.9

Disposals

 

(2.0)

-

(2.0)

Disposal of intu Bromley (note 27)

 

-

(179.4)

(179.4)

Deficit on revaluation

 

(21.6)

(56.4)

(78.0)

Foreign exchange movements

 

8.8

-

8.8

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

 

6,891.4

2,320.7

9,212.1

 

 

 

 

 

1 Relates to Puerto Venecia, Zaragoza. 

A reconciliation to market value is given in the table below:

 

2016

2015

 

£m

£m

 

 

 

Balance sheet carrying value of investment and development property

9,212.1

8,403.9

Tenant incentives included within trade and other receivables (note 18)

109.9

101.0

Head leases included within finance leases in borrowings (note 21)

(80.2)

(34.2)

 

 

 

 

 

 

Market value of investment and development property

9,241.8

8,470.7

 

 

 

The fair value of the Group's investment and development property at 31 December 2016 was determined by independent external valuers at that date other than certain development land. The valuations are in accordance with the Royal Institution of Chartered Surveyors ('RICS') Valuation - Professional Standards 2014 and were arrived at by reference to market transactions for similar properties 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. In respect of development valuations, deductions are then made for anticipated costs, including an allowance for developer's profit before arriving at a valuation.

 

Notes (continued)

15 Joint ventures

The Group's principal joint ventures own and manage investment and development property.

 

 

 

 

 

 

2016

 

intu

St David's,

Puerto

intu

 

 

 

Merry Hill

Cardiff

Venecia

Asturias

Other

Total

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

At 1 January 2016

447.0

368.5

85.9

53.4

37.1

991.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group's share of underlying profit

3.3

13.7

0.7

0.8

1.3

19.8

Group's share of other net profit/(loss)

(4.3)

(14.3)

19.4

12.9

(1.4)

12.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group's share of profit/(loss)

(1.0)

(0.6)

20.1

13.7

(0.1)

32.1

Distributions

(1.0)

-

-

-

(2.2)

(3.2)

Loan advances

-

-

-

-

1.2

1.2

Loan repayments

-

(12.7)

-

-

-

(12.7)

Disposal of joint venture interest

(445.0)

-

-

-

-

(445.0)

Foreign exchange movements

-

-

13.4

8.9

1.0

23.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2016

-

355.2

119.4

76.0

37.0

587.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Represented by:

 

 

 

 

 

 

Loans to joint ventures

-

98.4

95.3

33.9

4.6

232.2

Group's share of net assets

-

256.8

24.1

42.1

32.4

355.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

intu

St David's,

Puerto

intu

 

 

 

Merry Hill

Cardiff

Venecia

Asturias

Other

Total

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

At 1 January 2015

433.0

310.9

-

47.3

60.3

851.5

Puerto Venecia, Zaragoza

-

-

86.1

-

-

86.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group's share of underlying profit

7.5

13.8

0.6

0.6

2.2

24.7

Group's share of other net profit/(loss)

12.2

61.4

(0.8)

8.4

2.7

83.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group's share of profit/(loss)

19.7

75.2

(0.2)

9.0

4.9

108.6

Distributions

(5.7)

-

-

-

(3.3)

(9.0)

Repayment of capital

-

-

-

-

(25.6)

(25.6)

Loan advances

-

-

-

-

0.8

0.8

Loan repayments

-

(17.6)

-

-

-

(17.6)

Foreign exchange movements

-

-

-

(2.9)

-

(2.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2015

447.0

368.5

85.9

53.4

37.1

991.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Represented by:

 

 

 

 

 

 

Loans to joint ventures

386.2

111.0

82.3

29.3

2.3

611.1

Group's share of net assets

60.8

257.5

3.6

24.1

34.8

380.8

At 31 December 2016, the boards of joint ventures had approved £15.7 million (2015: £5.3 million) of future expenditure for the purchase, construction, development and enhancement of investment property. Of this, nil (2015: £2.0 million) is contractually committed. These amounts represent the Group's share.