The intu difference intu properties plc Annual report 2016 Welcome to our annual report 2016 Our purpose is to create compelling, joyful experiences that surprise and delight our customers and make them smile. We are a people business and everything we do is guided by our culture and our values. We’re passionate about providing people with their perfect shopping experience so that our retailers flourish. And it’s this that powers our business, creating opportunity for our retailers and value for our investors; benefiting our communities and driving our long-term success. Contents Overview Governance Highlights of 2016 2 Chairman’s introduction 58 Our top properties 4 Board of Directors 60 Executive Committee 62 Strategic report The Board 63 Chairman’s statement 6 Viability statement 68 Chief Executive’s review 8 Audit Committee 69 Our growth story 10 Nomination and Review Committee 74 Investment case 12 Directors’ remuneration report 76 Directors’ report 94 The intu difference Statement of Directors’ responsibilities 96 Making the difference 14 Understanding our markets 16 Financial statements Optimising asset performance 18 Independent auditors’ report 98 Delivering UK developments 20 Consolidated income statement 106 Making the brand count 22 Consolidated statement of Seizing the growth opportunity in Spain 24 comprehensive income 107 At the heart of communities 26 Balance sheets 108 Our business model 28 Statements of changes in equity 109 Relationships 30 Statements of cash flows 112 Strategy overview 32 Notes to the financial statements 113 Key performance indicators 34 Focus on risk 36 Other information Principal risks and uncertainties 38 Investment and development property 164 Operating review 40 Financial covenants 166 Financial review 46 Financial information including Corporate responsibility 52 share of joint ventures 168 Our people 55 Underlying profit statement 171 EPRA performance measures 172 Financial record 176 Glossary 177 Dividends 179 Go online intugroup.co.uk/en/investors/ Shareholder information 180 intu-annual-report-2016/ 1 Overview What’s inside Our strategy for 2017 remains unchanged in terms of relentless focus on improving our centres and overall business performance.” Read the Chief Executive’s review page 8 How do we make the difference? page 14 How are we Our growth story addressing the page 10 risks to our business? page 38 Corporate responsibility page 52 Read about our commitment 1 This icon denotes key case to governance Optimising Our business studies that demonstrate how asset we are integrating CR into our page 58 performance model business strategy. page 28 Read more in our 2016 CR report intugroup.co.uk/en/about-us/ corporate-responsibility Glossary 2 page 177 Our Delivering UK customers developments Culture at intu How have we performed in the year? Our culture and how we behave is an important part of the intu difference and a big reason behind our success. Throughout the report this symbol denotes information about our culture. Read more content Operating review Financial review in the annual report page 40 page 46 Read more content at intugroup.co.uk 2 intu properties plc Annual report 2016 Highlights of 2016 Presentation of information Amounts are presented including the Group’s share of joint ventures. Underlying earnings is used by management to assess the underlying performance of the business and is based on an industry standard comparable measure. It excludes valuation movements, exceptional items and related tax. See financial review on page 46 for more details on the presentation of information and alternative performance measures used Overview Highlights of 2016 3 Financial highlights1 Net rental income2 Underlying earnings Our results show growth in net rental income and underlying earnings with net asset value per share stable. £447m £200m — strong growth in like-for-like net rental income of 3.6 per cent, in (2015: £428m) (2015: £187m) line with guidance, with an outstanding first half of the year and the second half matching the strong comparative from 2015 Property revaluation deficit2 Profit for the year — underlying earnings increased by 7 per cent to £200 million, primarily as a result of the growth in like-for-like net rental income £(64)m £172m — like-for-like property values unchanged in the year, absorbing the (2015: £351m surplus) (2015: £518m) 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 Underlying EPS Dividend per share 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 15.0p 14.0p a property revaluation surplus of £351 million) (2015: 14.2p) (2015: 13.7p) — underlying earnings per share increased by 6 per cent to 2 15.0 pence (2015: 14.2 pence) and dividend up 2 per cent NAV per share (diluted, adjusted) Debt to assets ratio to 14.0 pence — net asset value per share (diluted, adjusted) of 404 pence 404p 43.7% unchanged from 2015, delivering a total financial return in the year of 3.4 per cent (2015: 404p) (2015: 43.1%) — an active year of asset recycling has enabled us to maintain Market value of Net external debt2 a similar debt to assets ratio, acquiring the remaining 50 per cent 2 of intu Merry Hill for £410 million from the proceeds of investment properties the disposals of intu Bromley and our interest in Equity One £4,364m — cash and available facilities of £922 million (31 December 2015: £9,985m (2015: £4,139m) £588 million) (2015: £9,602m) Our strategic objectives Optimising asset Delivering UK Making the Seizing the growth performance developments brand count opportunity in Spain We aim to deliver attractive By extending and enhancing We leverage the strength Our strategy is to create long-term total property our existing locations we aim of our brand to create a business of scale returns from strong, stable to deliver superior returns compelling experiences through acquisitions income streams for our customers and development projects — like-for-like property values — capital expenditure of — net promoter score, our — occupancy remained strong unchanged in the year, £93 million in the year measure of customer service, in our two existing centres, significantly outperforming including £37 million on the consistent at 70 for the year with footfall and retailer sales the IPD monthly retail index extension of intu Watford — intu Experiences, our both up by 2 per cent which fell by 4.7 per cent and £13 million on completed commercialisation and — signed 27 leases at 20 per — increased like-for-like net restaurant developments promotions business, cent above the previous rental income by 3.6 per — completed the casual generated income of over passing rent cent in the year, reflecting dining developments at £20 million, equivalent to — strong increases in the market improving rental levels from intu Metrocentre (nine the rental income of our value of both centres with intu new lettings and rent reviews restaurants) and intu Eldon eighth largest centre Asturias up 14 per cent and — signed 214 long-term leases Square (20 restaurants) — intu.co.uk, our online Puerto Venecia up 10 per cent (187 in the UK and 27 in — good letting progress on shopping platform with — commenced a €7 million Spain) delivering £38 million the extension of intu Watford strong editorial content, has project at intu Asturias to of annual rent at an average which is on budget and on attracted over 480 retailers develop a previously under- of 4 per cent above previous target to open in late 2018 and delivered 28 million utilised space passing rent and in line with website visits in 2016, an — intend to commence over — completed land assembly valuers’ assumptions increase of 15 per cent on £200 million of development at intu Costa del Sol and 2015, with sales for retailers — new lettings offset by the projects in 2017 – the successfully incorporated of £6 million closure of BHS stores leaves Nickelodeon-anchored leisure the proposed shopping occupancy unchanged at scheme at intu Lakeside, the — intensity reduction in carbon resort into the general plan 96.0 per cent enclosure of Barton Square emissions of 47 per cent of Torremolinos — increased footfall by at intu Trafford Centre and since 2010 1.3 per cent, compared the redevelopment of intu Broadmarsh 1 Please refer to glossary on page 177 for definition of terms. to a 2.0 per cent fall in 2 Including Group’s share of joint ventures. the national ShopperTrak retail average Read about the strategic objectives in action on pages 13 to 27 4 intu properties plc Annual report 2016 Our top properties We own and manage some of the best shopping centres, in some of the strongest locations across the UK and in Spain intu Trafford Centre intu Trafford Centre is the only UK location other than Oxford Street where you can find Selfridges, John Lewis, Debenhams and Marks & Spencer in one place. As the prime shopping destination in the north west, with a catchment of nearly 10 million, it is no wonder it is the first stop for retailers as they expand outside central London. Footfall 31m ** 1 16 17 Asset valuation at 15 Market Size 14 31 December 2016 value (sq ft 000) 13 Super-regional centres 12 * 11 £10.0bn intu Trafford Centre £2,312m 1,973 10 (2015: £9.6bn) intu Lakeside £1,375m 1,435 2 intu Metrocentre £945m 2,108 9 intu Merry Hill £899m 1,671 8 intu Braehead £546m 1,127 Cribbs Causeway £239m 1,075 7 6 3 In-town centres 5 intu Derby £450m 1,300 4 Manchester Arndale £446m 1,600 intu Victoria Centre £361m 976 Super-regional centres In-town centres St David’s, Cardiff £353m 1,391 65% 31% intu Watford £336m 726 1.