Intu Properties : Final Results

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:

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 websiteintugroup.co.uk.

NOTES TO EDITORS

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 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

1 IPD monthly index, retail.

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

· 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

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.

* 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

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

* 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:

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

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

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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).

Balance sheet

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

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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 £225.0million 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 £9.8million to £291.6 million and gross debt has increased by £215.2million 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

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

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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

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.

Capitalcommitments

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:

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

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

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

Consolidated balance sheet

as at 31 December 2016

Consolidated statements of changes in equity

for the year ended 31 December 2016

Consolidated statements of changes in equity (continued)

for the year ended 31 December 2016

Consolidated statement of cash flows

for the year ended 31 December 2016