INTU.L Regulatory News (INTU)

22 FEBRUARY 2018

INTU PROPERTIES PLCAUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

STRONG RESULTS IN A CHALLENGING RETAIL ENVIRONMENT

David Fischel, intu Chief Executive, commented:

 "The underlying strengths of the intu business were much in evidence in 2017 as we recorded a robust overall performance, confounding the external gloom and negativity in pre-Brexit UK about retail and retail property.

We recorded a strong year of leasing activity, signing 217 long-term leases in the UK and Spain, at rents in aggregate 7 per cent ahead of previous rents, as retailers continue to focus on increasing their space in prime, high footfall retail and leisure destinations such as our shopping centres.

During the year, major flagship brands upsized and optimised their presence, with the likes of Primark, Next and River Island taking additional space in our centres, and Inditex and H&M expanding their brand portfolios with us. Major international brands have also continued to recognise the attraction of our centres, including Victoria's Secret (US), Lovisa (Australia), Colette (Australia) and Inglot (Poland) adding new stores.

This successful leasing performance has driven our third successive year of like for like net rental income growth, a key strategic priority for us. Following increases of 1.8 per cent in 2015 and 3.6 per cent in 2016, we have delivered a 0.5 per cent increase for the year overall, with a strong second half recovery with growth of 2.4%. Consequently, we reiterate our medium-term guidance, over the next three to five years, of 2 to 3 per cent like-for-like net rental income growth per annum and expect to be in the range of 1.5 to 2.5 per cent like-for-like net rental income growth in 2018.

Our asset performance was resilient in the UK and buoyant in Spain, resulting in a revaluation surplus of £47 million, which in turn drove an increased profit for the year of £203 million (2016: £172 million) and took net asset value per share from 404 pence to 411 pence. Other key performance indicators, such as 96 per cent occupancy and increased footfall for the year, also demonstrated that intu is in good shape.

We moved on at pace with our investment plans, with significant projects underway at intu Watford, intu Lakeside and a number of other centres. In the UK, we spent £184 million during the year and have plans to invest a further £562 million over the next three years, with plenty of opportunity beyond that period, at returns we anticipate to deliver significant enhancement to shareholder value.

Our successful asset recycling initiatives have continued as we concluded terms for the £148 million disposal of 50 per cent interest in intu Chapelfield, following our disposals of intu Bromley and part of intu Uxbridge in previous years, all on terms confirming the market values of these assets.

We continued to seize the substantial growth opportunity we see in Spain and acquired Madrid Xanadú in the year, a centre full of potential and an ideal fit for our shopping resort model in Spain. With three top 10 shopping centres in the country, our Spanish business, which we embarked upon in 2013 at an opportune moment in the cycle, delivered a tremendous performance during the year with continued high occupancy, increased footfall and valuations of intu Asturias and Puerto Venecia, Zaragoza increasing 11 per cent and 4 per cent respectively. We also welcomed new names to our centres, including Quiz, Levis, Pandora, Alcott and Xiaomi, signing 38 new leases at an average 25% ahead of previous passing rent.

Five years on from launch, the importance of the intu brand has continued to grow with customer awareness increasing considerably. The transaction between Hammerson and intu is expected to complete later this year and, as announced in December, the enlarged group will be using the intu name within its shopping centre business.

These results are an endorsement of the underlying strength of the intu business. Our active asset management, repositioning of the portfolio, investment in our centres and brand in recent years have put intu in a strong position to mitigate the continuing challenging business environment. Because of this, we remain confident in our future prospects and our ability to deliver further like-for-like rental growth in the year ahead."

Enquiries:

Investor presentation

A presentation to analysts and investors will take place at UBS, 5 Broadgate, London EC2 at 9.30GMT on 22 February 2018. 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

About intu

intu owns and manages some of the best shopping centres, in some of the strongest locations, in the UK and Spain.

Our UK portfolio is made up of 17 centres, including ten of the top 25, and in Spain we own three of the country's top 10 centres, with advanced plans to build a fourth.

We are passionate about creating compelling experiences, in centre and online, that make our customers smile and help our retailers flourish.

We attract over 400 million customer visits and 26 million website visits a year offering a multichannel approach that truly supports retail strategies. In 2017, we launched the UK's first tailor-made promotional services model to help brands as they look to optimise their portfolio or expand their UK coverage.

Our strategic focus on prime, high-footfall flagship destinations, combined with the strength and popularity of our brand, means that intu offers enhanced footfall, dwell time and loyalty. This helps our retailers flourish, driving occupancy and income growth.

We are committed to our local communities, with our centres supporting over 120,000 jobs (representing about 3 per cent of the total UK retail workforce), and to operating with environmental responsibility. We have already met or exceeded a significant number of our 2020 environmental targets.

Presentation of information

We account for our interests in joint ventures using the equity method as required by IFRS 11 Joint Arrangements. This means that the income statement and the balance sheet include single lines for the Group's total share of post-tax profit and the net investment in joint ventures respectively.

Management review and monitor performance as well as determine the strategy of the business primarily on a proportionately consolidated basis. This includes the Group's share of joint ventures on an individual line-by-line basis rather than a post-tax profit or net investment basis. The figures and commentary presented are consistent with our management approach as we believe this provides a more meaningful analysis of the Group's performance. The other information section provides reconciliations of the income statement and balance sheet between the two bases.

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

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 2017

Optimising asset performance

Delivering attractive long-term total property returns from strong, stable income streams

· increase in like-for-like net rental income of 0.5 per cent, a third successive year of growth. Former BHS stores substantially relet with excellent lettings to quality retailers such as Next, Primark and Uniqlo

· signed 217 long-term leases (2016: 214) - 179 in the UK and 38 in Spain - delivering £38 million of annual rent at an average of 7 per cent above the previous passing rent (2016: 4 per cent) and in line with valuers' assumptions

· rent reviews settled in the year on average 9 per cent above previous passing rent (2016: 8 per cent)

· occupancy stable at 96.1 per cent (December 2016: 96.0 per cent)

· footfall increased by 0.1 per cent outperforming the national ShopperTrak retail average which fell by 2.8 per cent

Delivering UK developments

Extending and enhancing our existing locations to deliver superior returns

· capital expenditure of £184 million in the year including £63 million on the extension of intu Watford and £58 million on the acquisition of income generating properties which will form part of future capital projects

· the £180 million intu Watford extension is on target and on budget to open in October 2018 with pre-lets well advanced

· commenced the £72 million Nickelodeon-anchored leisure scheme at intu Lakeside; completed the leisure line-up by signing Hollywood Bowl, Puttshack and Flip Out

· near-term committed and pipeline capital expenditure for the next three years of £562 million, with intention to start intu Trafford Centre (Barton Square - £72 million) and intu Broadmarsh, Nottingham (£81 million) projects in 2018

Making the brand count

Using our respected brand to create compelling experiences for our customers

· unprompted awareness of the intu brand increased to 26 per cent (2016: 22 per cent), with prompted awareness increasing to 71 per cent (2016: 63 per cent)

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

· intu Experiences, our dedicated promotions business, generated income of £22 million, equivalent to the rental income of our seventh largest centre

· intu.co.uk, our premium content publisher and shopping platform, delivered sales for retailers of £9 million, a 50 per cent increase on 2016

· achieved our 2020 target of a 50 per cent intensity reduction in carbon emissions three years ahead of plan

Seizing the growth opportunity in Spain

Creating a business of scale through acquisitions and development projects

· acquired Madrid Xanadú, one of Spain's top-10 shopping centres, for a headline price of €530 million, and introduced TH Real Estate as a 50 per cent joint venture partner

· signed 38 long-term leases delivering £2 million of annual rent at an average of 25 per cent above previous passing rent

· occupancy stable at 97 per cent and footfall up 1 per cent, which includes the disruption from the intu Asturias mall redevelopment in the year which has now successfully completed

· revaluation surplus of £98 million in Spain from intu Costa del Sol land (£74 million) and existing centres (£24 million) with intu Asturias up 11 per cent and Puerto Venecia up 4 per cent, driven by growth in rental values

· at intu Costa del Sol, our proposed 230,000 sq m shopping resort development, approval of the General Plan of Torremolinos was a major step forward. The remaining consents are expected in the coming months

HIGHLIGHTS OF 2017

Financial highlights 1

1 Please refer to glossary for definition of terms.

2 Including Group's share of joint ventures.

3 See other information section for reconciliations between presented figures and International Financial Reporting Standards (IFRS) figures.

4 Including intu Chapelfield which is classified as an asset held for sale.

5 Market value of investment properties is based on third party valuations as at 31 December 2017. For the purposes of the Takeover Code the scheme document to be issued in connection with the proposed transaction with Hammerson will contain valuation reports in accordance with Rule 29 of the Code.

6 Pro forma for the £148 million disposal of 50 per cent of intu Chapelfield which completed on 31 January 2018.

Highlights for the year:

· increase in net rental income of £13 million includes strong like-for-like recovery in the second half of the year with growth of 2.4 per cent, delivering full year like-for-like growth of 0.5 per cent

· growth in the second half of the year taking full year underlying earnings to £201 million, ahead of 2016

· increase in Spanish valuations, partially offset by a small fall in UK values, delivers a property revaluation surplus of £47 million

· increased profit for the year by £31 million to £203 million primarily from the property revaluation surplus (movement of £111 million against the deficit in 2016), partially offset by one-off £74 million gain on disposal in 2016

· underlying earnings per share in line with 2016 at 15.0 pence with full year dividend unchanged at14.0 pence

· net asset value per share (diluted, adjusted) of 411 pence, an increase of 7 pence, delivering a total financial return for the year of 5.2 per cent

· substantial cash and available facilities of £833 million on a pro forma basis (31 December 2016: £922 million), reflecting the £148 million disposal of 50 per cent of intu Chapelfield, Norwich

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.

CHIEF EXECUTIVE'S REVIEW

Our performance in 2017

The underlying strengths of the intu business were much in evidence in 2017 as we have recorded a robust overall performance, confounding the external gloom and negativity in pre-Brexit UK about retail and retail property, and showing the success of our asset management initiatives and strategic positioning.

Our underlying earnings per share were steady at 15.0 pence; we grew like-for-like net rental income by 0.5 per cent, within our original guidance 12 months ago; and net asset value per share, helped by a tremendous performance from the Spanish business, increased from 404 pence to 411 pence.

We delivered on each of our four core objectives for 2017:

· asset performance was resilient in the UK and buoyant in Spain, with the clear message from key performance indicators, such as lettings, occupancy, footfall and dwell time, that intu is in fine shape

· the investment programme in the UK moved on at pace with expenditure in the year of £184 million. The pipeline for the next three years amounts to £562 million, with plenty of opportunity beyond that date. In addition to the £180 million intu Watford extension, opening in 2018, significant projects are underway at major centres, such as intu Lakeside, intu Trafford Centre and intu Merry Hill

· the awareness and importance of the intu brand has continued to grow. Five years on from launch, we can clearly see the advantages of a strong brand for a shopping centre business such as ours. Among these advantages we would include superior customer service, refreshing changes to the centres' physical and digital environments and new and innovative sources of revenue

· we continued to seize the growth opportunity in Spain. We acquired Madrid Xanadú in the year, a centre full of growth opportunities and an ideal fit for our shopping resort model in Spain, with a Nickelodeon theme park attraction and aquarium under construction, to add to the existing indoor ski slope

Outlook and 2018 strategic objectives

The environment for the business is likely to remain challenging as the UK continues through the Brexit negotiations. Our shopping centres have not been immune to the UK's relatively sluggish economic performance. Decision-making about investing in the UK has inevitably been impacted in the pre-Brexit period and domestic consumers have been adapting to fluctuations in their discretionary spending capacity.

The 2017 results are, however, a considerable endorsement of the underlying strength of the intu business and our strategic objectives for 2018 build on those we have pursued in the last few years. They are:

· growing like-for-like net rental income

· optimising our flagship destinations

· delivering operational excellence

· making smart use of capital

Front of mind for investors is the changing mix of online and in-store sales and how that might affect demand for physical space, hence our particular focus on the basic measure of growing like-for-like net rental income. At intu, we are still seeing key retailers taking more space, and investing for the long term in our centres, as they recognise the footfall we deliver and our ability to create more reasons for customers to visit and stay longer.

Our energies are also concentrated on ensuring all our centres evolve with consumer and retailer needs, so that they deliver sustainable growth. Keeping our centres at the forefront of people's minds requires continual focus on bringing in new attractions, be it a key retailer or restaurant or a compelling leisure attraction. In addition to delivering our target return hurdles, our projects innovate what we offer our customers and keep us at the leading edge of the shopping centre industry.

Nowhere will this be more obvious than at our ground-up scheme in Spain, intu Costa del Sol, where we have the opportunity to create a world-class centre, delivering our signature shopping resort product and showcasing our expertise.

Operational excellence is a clear differentiator in both the UK and Spain. Our knowledge and insight are important, as is our culture and living our values - bold, creative and genuine -- which underpin everything that we do. Our culture is embodied by our brand which has become recognised throughout the shopping centre industry, with intu a byword for fantastic customer service, motivated and enthusiastic staff, expert mall operations and good corporate citizenship.

Our skill in this area is recognised by the partners we have brought in to the business in the last few years, including CPPIB, LaSalle Investment Management and TH Real Estate. The ability to partner on assets allows us to astutely recycle and allocate capital to deliver superior returns. With over £800 million of cash and committed facilities, our financial position is very sound.

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 customers and retailers want to be. This increases the value of our centres and provides strong, stable income streams and positive operating metrics. These elements ensure we deliver attractive long-term total property returns.

Valuation

The table above shows the main components of the £47.3 million revaluation surplus:

· UK super-regional centres and major city centres: stable values recognising the continuing attraction of this asset class which remains key to retailers' requirements. The small overall deficits relate to investment on the existing intu Watford centre and tenant repositioning at intu Merry Hill not yet reflected in rental values

· Spanish centres: strong rental growth and continued strong demand for top-quality Spanish centres has driven valuations up at both intu Asturias and Puerto Venecia

· Spanish developments: with most of the planning requirements in place at intu Costa del Sol, the first independent valuation of the site, which was previously carried at cost, delivered a £74 million surplus over cost

· other: represents valuation movements on assets valued below £200 million each

The weighted average nominal equivalent yield at 31 December 2017 remained stable at 5.03 per cent, an increase of one basis point in the year.

On a like-for-like basis, ERV increased by 1.0 per cent in the year, compared with the IPD index which indicated a 0.4 per cent increase.

The overall quality of our portfolio is illustrated by our long-term outperformance of the IPD capital growth monthly retail index, as shown in the chart below.

 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/5578F_-2018-2-21.pdf

Group like-for-like net rental income

Rent from lettings and rent reviews delivered 2.2 per cent rental growth. Against previous passing rent, lettings were on average up 7 per cent and rent reviews up 9 per cent.

This growth was partially offset by the 1.4 per cent impact of units closed for redevelopment and/or repositioning, mainly from the former BHS stores which are now substantially relet with excellent lettings to quality retailers such as Next, Primark and Uniqlo. These were not income producing in 2017, but will come back on stream in 2018.

As previously stated, we expect to deliver medium term like-for-like net rental income growth of 2 to 3 per cent per annum, over the next three to five years, and in 2018 we expect this to be in the range of 1.5 to 2.5 per cent, subject to no material tenant failures.

UK operating metrics

Occupancy is 96.1 per cent, in line with 31 December 2016 and 30 June 2017. This is equivalent to 97.0 per cent on the industry standard EPRA calculation (December 2016: 97.0 per cent).

We agreed 179 long-term leases in the year, amounting to £35 million annual rent, at an average of 6 per cent above previous passing rent (like-for-like units) and in line with valuers' assumptions. Retailers continue to focus on increasing their space in prime, high footfall retail destinations. Significant activity in the year includes:

· new retail anchors, in the shape of key fashion brands, upsizing to optimise their offering and configuration. This includes Primark, Next and River Island upsizing at intu Merry Hill, as well as Inditex and H&M expanding their brand portfolios with Stradivarius at St David's and Monki at Manchester Arndale

· international brands' ongoing recognition of the attraction of intu's destination shopping centres. Victoria's Secret, the US lingerie brand, and Lovisa, an Australian accessories store, have both added three stores. Colette, the Australian handbag retailer, has opened its second UK store at Manchester Arndale and Inglot, a Polish cosmetics brand, opened its first store outside London at intu Eldon Square

· brands recognising the benefit of stores as part of their customer acquisition, with Paul Smith opening their first store in Manchester at Manchester Arndale and Tesla continuing their roll-out of stores at intu Milton Keynes

· leisure operators continuing to grow in flagship destinations with Puttshack, Flip Out and Hollywood Bowl joining Nickelodeon at the intu Lakeside leisure extension and Gravity at the refurbished Soar at intu Braehead

259 shops opened or refitted in our UK centres in 2017 (2016: 225 stores), around 9 per cent of our 2,800 units. Tenants have invested around £89 million in these stores, a significant demonstration of their commitment to our centres.

We settled 218 rent reviews in the year for new rents totalling £47 million, an average uplift of 9 per cent on the previous rents.

Footfall improved by 0.1 per cent in the year, significantly outperforming the ShopperTrak measure of UK national retail footfall which was down by 2.8 per cent, highlighting the attraction of our compelling destinations against the wider market.

Estimated retailer sales in our centres were down 2.1 per cent predominantly driven by some clothing retailers who had a challenging year in 2017. In-store sales figures take no account of the benefit of the store to retailers' online sales and are further impacted by returns of online sales. The ratio of rents to estimated sales for standard units remained stable in the year at 12.1 per cent.

Catering and leisure units now comprise over 500 of our overall 2,800 leases and have increased steadily in recent years in a growing market. Reflecting changing customer preferences, over the last five years, this market has increased to around 13 per cent of total rental income. Over the same period, we have seen a reduction in rental income from fashion outlets to around 25 per cent.

The difference between annual property income (see glossary) of £462 million and ERV of £544 million represents £37 million from vacant and development units and reversion of £45 million, 8 per cent, from rent reviews and lease expiry. Of the 8 per cent reversion, 1 per cent is only realisable on expiry of leases with over 10 years remaining (eg anchor units), leaving 7 per cent realisable from other lease expiries and rent reviews.

The weighted average unexpired lease term is 7.5 years (31 December 2016: 7.7 years) illustrating the longevity of our income streams.

Delivering UK developments

In 2017, we invested £184 million in the UK. This included £63 million on the intu Watford extension, £58 million on the acquisition of additional properties (all currently income-generating) which will be integral to future development projects, £12 million on the leisure extension at intu Lakeside and £51 million on other active asset management projects, including the new Travelodge hotel at intu Lakeside and the Next flagship store at intu Metrocentre.

Near-term pipeline

Looking ahead, we are progressing our near-term pipeline of £562 million over the next three years, reinforcing our existing assets and delivering value-enhancing returns. Our development team continues to progress these projects on budget and on time, with major developments on site at intu Watford and intu Lakeside and soon to start at intu Trafford Centre (Barton Square) and intu Broadmarsh, Nottingham.

1 See below - Seizing the growth opportunity in Spain - for more details.

We are committed to investing £264 million, most of which is on key ongoing projects:

· at intu Watford we remain on target with our £180 million extension expected to open in October 2018. The development has topped out, with the feature roof now installed and anchor tenants due to start fitting out in the next few months. The 380,000 sq ft project, anchored by Debenhams and Cineworld, is two-thirds let by space with Superdry and Hollywood Bowl exchanged in the year. The cost to completion of this project is £80 million, and as previously stated, the project is expected to deliver a return on cost of 6 to 7 per cent, including 1 to 2 per cent from the existing centre

· at intu Lakeside we have commenced construction of the £72 million leisure extension, with £57 million of cost remaining to completion. This 175,000 sq ft project is expected to deliver a return on cost of 6.5 per cent and has the four leisure attractions Nickelodeon, Flip Out, Puttshack and Hollywood Bowl exchanged

· at intu Trafford Centre, we have signed Primark to anchor the expansion and transformation of Barton Square. The £72 million project will enclose the courtyard, enhance interiors, allow trading from two levels and provide a fashion offer for the first time at Barton Square. We are progressing the procurement of the construction works and expect the project, delivering a return of 6 to 7 per cent, to be completed by mid-2019

· active asset management projects total £55 million and include the Halle Place restaurant redevelopment at Manchester Arndale, the creation of flagship stores for Next at intu Metrocentre and intu Merry Hill and the redevelopment of former BHS units for Uniqlo and Primark at Manchester Arndale and intu Merry Hill respectively. These projects are expected to deliver a range of returns between 6 and 10 per cent dependent on the nature of the individual project

Our pipeline of planned projects amounts to £298 million, with a focus on extension and redevelopments:

· at intu Broadmarsh we have a planned redevelopment which is expected to cost £81 million and deliver a stabilised initial yield of around 7 per cent. We have signed The Light cinema and Hollywood Bowl to anchor the scheme and we would expect to have the required level of pre-lets and completed detailed design to enable us to commit to this by the second half of 2018

· at intu Merry Hill we are planning to increase the catering and leisure to bring it in line with other super-regional centres. In total, we expect to invest around £100 million, of which £70 million will be spent in the period to 2020, delivering a return at a similar level to that of the leisure extension at intu Lakeside

· at intu Milton Keynes we expect to invest £15 million commencing phase one of the redevelopment of under-utilised space

· other active asset management projects are smaller in nature, across all centres and at various stages of feasibility. We have the flexibility to start these projects when we have the required level of pre-lets and expect them to deliver similar returns to those that we have committed to

Future opportunities

Beyond 2020, we continue to work on securing the required planning approvals and tenant demand to start £1.4 billion of further projects which we would expect to deliver stabilised initial yields of around 7 per cent. We have planning approvals for extensions to intu Braehead, intu Lakeside, intu Victoria Centre and intu Milton Keynes and are at earlier stages of the planning process for the extension of Cribbs Causeway.

Funding

We will fund our near-term pipeline from cash and available facilities and from recycling capital to deliver superior returns. Cash and available facilities at 31 December 2017 were £833 million on a pro forma basis including the £148 million disposal of 50 per cent of intu Chapelfield. Further recycling potential lies in the introduction of partners into some of our centres, although this would have a short-term negative earnings impact until the proceeds are reinvested.

In addition, we expect to raise finance on near-term projects, such as the intu Watford extension, as they complete, to fund future opportunities.

Making the brand count

The intu brand has positioned us well, as the role of the shopping centre operator has changed, to ensure our centres remain relevant for both customers and retailers. The unprompted awareness of the intu brand increased to 26 per cent, a threefold increase since 2015 when we started monitoring, highlighting its increasing recognition and value. Additionally, our prompted awareness has increased to 71 per cent in 2017, from 63 per cent in 2016.

The combination of our national presence, attractive digital offering and in-house experiences team offers retailers and brands promotional opportunities, which in turn gives us a multidisciplinary opportunity to help retailers flourish within our centres.

The importance of identifying new ideas and services emerging in the UK retail market cannot be underestimated. In 2017 we launched intu Accelerate, an incubator for these technologies and services, identifying start-ups to pilot new concepts in centre and online, including what is believed to be Europe's first customer services robot in a shopping centre.

Customer service

Putting the customer first is embedded in our culture. Our net promoter score, a measure of customer service, ran consistently high throughout the year averaging 70 and demonstrating our in-centre operational excellence.

intu Experiences

Curation of the customer experience is a key element of our role in managing shopping centres. Our in-house team, intu Experiences, which generated income of £22 million, is crucial in delivering immersive brand partnerships, mall commercialisation and advertising which is complementary to the asset strategy of each centre and meets our quality standards.

An example of this end-to-end control is the large format digital screen we have introduced to each of our out-of-town centres, providing new income streams from global brands. We own all these screens and, in many instances, produce the content in-house - an area of growth for us.

Similarly, choosing the brands we work with promotionally is important in delivering the right messages. Through the Easter holidays we furthered our collaboration with Nick Jr., Nickelodeon's pre-school television channel, adding augmented reality functionality to our in-centre app to deliver a new family experience to our customers.

intu Digital

Our attractive digital offering through our premium content publisher and shopping platform, intu.co.uk, continued to grow strongly and delivered online sales for retailers of £9 million in the year, an increase of 50 per cent against 2016.

We continue to develop the site, with image recognition to assist product search added in 2017. 'Shop Insider', the premium content section of the site, saw traffic up nearly 200 per cent in the year to 1.5 million visits, leading to a 50 per cent increase in visits to the shopping pages. This highlights the power of quality content to drive both physical and digital sales, as shoppers continue to be ever more considered in their purchases, researching heavily online before planned visits.

Key to this growth is our online marketing expertise with over two million individuals on our active marketing database and a social media audience of over one million.

Seizing the growth opportunity in Spain

Our Spanish strategy has been to create a business of scale through acquisitions and our pipeline of development projects, concentrating on the top-10 key catchments, where we now own and manage three of Spain's top-10 shopping centres, with the acquisition of Madrid Xanadú in 2017 (see Acquisitions and disposals). In addition, we have three development sites with the most advanced project being intu Costa del Sol, near Málaga.

Operational performance

The occupancy of our Spanish centres is 97 per cent. We agreed 38 long-term lettings in the year, amounting to over £2 million annual rent, at an average of 25 per cent above previous passing rent (like-for-like units). New names to our centres included Quiz, Levis, Pandora, Alcott and Xiaomi.

Footfall increased by 1.0 per cent in the year and this includes the disruption in the first half of 2017 from the redevelopment work at intu Asturias where we developed a previously underutilised area to introduce a supermarket and new retail units. This opened in July with a strong uplift in footfall.

We have increased the value of the centres owned throughout the year with growth in rental values being the main driver. Our share of Puerto Venecia, Zaragoza was valued at £231 million, an increase of 4 per cent, and our share of intu Asturias increased by 11 per cent, to £141 million.

In 2018, we plan to roll out the intu brand to Puerto Venecia and Madrid Xanadú.

Near-term pipeline

Our Spanish development pipeline through to the end of 2020 amounts to £397 million.

We have active asset management projects of £57 million through to the end of 2020 across all three centres with a focus on enhancing the resort content of each centre.

Our world class project at intu Costa del Sol will create a shopping resort of around 230,000 sq m. In 2017, the approval of the General Plan of Torremolinos was a major step forward, with the remaining consents expected in the coming months. We have very strong interest from tenants and would anticipate being on site in the next 12 months.

The land, with planning mostly approved, was independently valued at the end of 2017, delivering a surplus of £74 million.

The total cost to completion of the development is expected to be around £600 million (£340 million through to 2020), excluding the land, and deliver a stabilised initial yield of around 7 per cent. We expect to fund the project through bank and other finance, and introduce a partner at a later stage.

Future opportunities

We continue to develop plans at the two other sites in Valencia and Vigo, having decided not to progress with our development option in Palma. At this point, intu Valencia, where we have renewed support from the regional government, is the most likely to follow intu Costa del Sol.

Acquisitions and disposals

In line with our strategy, we continue to recycle capital to focus on our flagship destinations where we have the opportunity to deliver superior returns.

Acquisitions

In March 2017, we acquired Madrid Xanadú, one of Spain's top-10 shopping centres, for an agreed headline price of €530 million. The centre has many of the key retailers, including El Corte Inglés, all the Inditex fascias, Primark and Apple, along with a strong leisure offering of Spain's only indoor ski slope, cinema, bowling and soon-to-open aquarium and Nickelodeon theme park. Footfall is 13 million, with a potential catchment of four million people living within a 30-minute drive time. Over the medium term, we see good reversionary potential, with further growth opportunities from key asset management initiatives which will enhance the centre's status as a truly regional retail and leisure resort, drawing visitors from a wider catchment.

In July 2017, we formed a joint venture with TH Real Estate for them to take ownership of 50 per cent of Madrid Xanadú based on the original acquisition price.

Disposals

In November 2017, we announced the formation of a joint venture with LaSalle Investment Management for them to take ownership of 50 per cent of intu Chapelfield, Norwich for a net consideration of £148 million, in line with the December 2016 valuation. The transaction completed in January 2018.

Corporate responsibility

We have had a successful year in both our work with communities and our efforts to reduce our environmental impact, having met many of our 2020 environmental targets three years early.

We have surpassed our ambitious target of a 50 per cent reduction in carbon intensity by 2020 based on our 2010 levels. Using a mix of technology and behaviour change interventions we are proud this year to have reached a total carbon reduction of 58 per cent from 2010 emissions. This has saved 144,000 tonnes of carbon and reduced our energy costs by £25 million.

We also maintained our 'zero waste to landfill' status for the second year, meaning we diverted 28,000 tonnes of waste from landfill and saved £2.4 million in associated landfill costs. However, due to market factors including China's ban on the importing of waste for recycling, our recycling rate has fallen by 11 per cent to 63 per cent. Recycling rates will continue to fall until new markets are found as there is insufficient provision in the UK to handle the quantity we produce.

Last year we set up the Green Lab, our sustainability innovation group, to drive forward a range of sustainability initiatives across the business. Following the introduction of renewable energy generation and food waste trials last year, this year we have focused on working with sustainability consultants Bioregional to test new innovations that can be rolled out across the business. We are trialling some of these ideas on the upcoming intu Broadmarsh redevelopment. Next year we plan to explore further innovations in our operations.

Our strong and open relationships with our stakeholders means we have delivered real and lasting change in our communities. This year our wide-ranging community investment - which focuses on skills and employment, health and wellbeing, and social inclusion - benefited 3,645 people. Feedback showed 71 per cent of responders reported experiencing a positive change in their quality of life.

Jobs in our centres continue to form a significant proportion of the UK's retail sector employment - we are responsible for about 3 per cent of all jobs in the sector. The majority of these are locally employed, meaning the wealth we create is captured locally.

This year we are reporting on our sustainability performance in Spain in our CR report and plan to include our Spanish assets in our future commitments.

MARKET REVIEW

UK investment market

Prime shopping centres continue to attract interest from both international and domestic investors. While activity was limited in 2017, good levels of demand remain for quality assets in the UK's liquid and transparent market for large shopping centres.

A flight to quality has ensured prime yields on assets with simple ownership structures remain stable as investors look at the quality and longevity of income streams coupled with rental growth potential in a market where new supply, by way of development, remains low. Against this, the depth of investor demand for secondary assets has diminished.

UK consumer market

Uncertainty regarding the final terms of the UK's exit from the EU is creating a mixed picture on the state of the UK consumer. Unemployment continues at record low levels which should in turn drive growth in personal income. However, the increase in inflation from the weakening of sterling after the EU referendum vote is causing prices to rise faster than wages at the moment which impacts consumers' disposable income. The Asda benchmark index of household disposable income has remained level since December 2016.

Looking further ahead, the Bank of England's forecasts suggest that wage growth will overtake inflation as we go into 2018.

Consumer confidence, as measured by GfK, has reduced slightly in 2017, reflecting the negative sentiment on the expectations for the economy, although consumers' view on their personal finance situation over the next 12 months is stable.

These mixed messages have not had a material effect on total non-food retail spending, which remained unchanged in 2017 against the previous year (British Retail Consortium total non-food retail index), although, with the continued growth in online,in-store sales were down by around 2 per cent in the year.

Occupier market

Retail is a dynamic industry, and retailers the world over are used to dealing with an ever-changing environment. Right now they are facing economic and structural challenges which are speeding up the rate of change of their online and instore strategies.

The store, and its value, is still integral to these strategies. Retailers are continuing to invest in flagship stores in locations that offer a compelling mix of retail, catering, leisure and experience and deliver high footfall. That is why we continue to be a key landlord for our retailers:

· New retail anchors: The retailers that attract customers to a centre are changing. Super retailers, such as Primark and Next, are increasing their store size, while the likes of Inditex and H&M are taking additional stores for their portfolios of brands. Customers are drawn to these retailers because they offer their full ranges in our flagship destinations

· International: Despite the challenging headwinds facing retailers, the UK is still an attractive market for international retailers who focus their expansion plans on high footfall, experience-based locations. Demand is truly global, with Victoria's Secret from the US, Australian accessories brand Lovisa and Polish cosmetics store Inglot all expanding

· Brands: As direct access to new customers becomes harder, brands are considering different routes, with shopping centres an attractive option as they offer high levels of footfall and long dwell times. Global brands such as Nespresso, Mercedes and Tesla are following this route and we are having conversations with fast-moving consumer goods companies

· Leisure: From trampolining and mini-golf to skiing and aquariums, brands such as Puttshack, Flip Out and Gravity are increasingly taking space in our flagship centres, to reach the leisure-hungry customer. Leisure and experience play a key role in what people decide to do with their free time and they want to enjoy such attractions at a place convenient to them

Spanish market

The Spanish economy is still one of Europe's fastest growing economies and this should continue in 2018 with its GDP growth expected to be one of the highest of the major European economies. For the consumer, unemployment is at its lowest level for several years and consumer confidence at its highest. This in turn benefits retail sales which are further enhanced by record levels of tourists which have increased by 20 per cent over the last two years.

The investment market remains strong with continuing investor confidence in Spanish real estate supported by an economy that is growing. With banks willing to lend against Spanish assets, the weight of money in the market looking to invest in quality assets has continued to strengthen the market. Partly due to the lack of development in recent years, prime regional shopping centres are scarce which is reflected in good demand.

TOP PROPERTIES

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

** Excludes owner occupied space.

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 performance as well as determine the strategy of the business primarily on a proportionately consolidated basis. This includes the Group's share of joint ventures on an individual line-by-line basis rather than a post-tax profit or net investment basis. The figures and commentary presented are consistent with our management approach as we believe this provides a more meaningful analysis of the Group's performance. The other information section provides reconciliations of the income statement and balance sheet between the two bases.

Alternative performance measures are also used to assess the Group's performance. The significant measures are summarised as follows:

Overview

We have recorded underlying earnings of £201.0 million for the year ended 31 December 2017, slightly higher than the £200.0 million recorded in 2016. This reflects 0.5 per cent growth in like-for-like net rental income as well as the impact of 2017 and 2016 acquisitions and disposals. Underlying earnings per share of 15.0 pence is unchanged from 2016.

Profit for the year attributable to owners of intu properties plc of £216.7 million has increased by £34.0 million, driven by a surplus on property revaluations of £47.3 million (2016: deficit of £63.8 million), as well as the change in fair value of financial instruments, a surplus of £23.0 million (2016: charge of £16.9 million), partially offset by 2016 gains of £74.1 million on the sale of our interest in Equity One and £34.6 million on the acquisition of the remaining 50 per cent of intu Merry Hill.

NAV per share of 411 pence has increased 7 pence from 2016, which when taking account of the dividend paid in the period of 14.0 pence delivers a total financial return for the year of 5.2 per cent. NAV per share includes a timing impact within retained earnings of 4 pence in relation to our Spanish development partner Eurofund's expected future interest in the share capital of the intu Costa del Sol development company. The positive impact on retained earnings is expected to reverse, once these arrangements are concluded, with the Eurofund interest to be included in non-controlling interests during 2018. In this event NAV per share would be 407 pence.

In March we continued to increase our presence in Spain and strengthen our quality portfolio, acquiring 100 per cent of Madrid Xanadú for €517.3 million (£453.9 million). As part of this we arranged a €263 million loan facility, with a 2022 maturity. In July we disposed of 50 per cent of Madrid Xanadú to TH Real Estate based on the original acquisition price, retaining a 50 per cent interest. Further, in November we announced the formation of a joint venture with LaSalle Investment Management (acting on behalf of Greater Manchester Pension Fund and West Yorkshire Pension Fund) for them to take ownership of 50 per cent of intu Chapelfield for initial net proceeds of £148.0 million. This transaction has now completed following the receipt of EU merger approval in January 2018. As a result, in accordance with IFRS, the net assets of intu Chapelfield have been classified as held for sale at 31 December 2017 in the balance sheet.

Our financing metrics remain strong mainly due to our continued refinancing activity. During the year we refinanced over £1.1 billion of debt, including the refinancing of intu Milton Keynes and intu Merry Hill, securing financing on Madrid Xanadú and additional financing on intu Trafford Centre. Our interest cover ratio of 1.94x is broadly unchanged in the year (31 December 2016: 1.97x) with satisfactory headroom above our target minimum level of 1.60x.

At 31 December 2017, pro forma for the 50 per cent part disposal of intu Chapelfield for initial net proceeds of £148.0 million, our debt to assets ratio has increased to 45.2 per cent (31 December 2016: 43.7 per cent), remaining below our target maximum level of 50 per cent. Also on a pro forma basis, we had cash and available facilities of £833.1 million (31 December 2016: £922.3 million) which have decreased in the year due to the acquisition and part disposal of Madrid Xanadú as well as buying back and cancelling £139.6 million of the £300 million 2.5 per cent convertible bonds, maturing Autumn 2018, partially offset by the net proceeds on the part disposal of intu Chapelfield.

Income statement

Underlying earnings increased to £201.0 million from £200.0 million at 31 December 2016. The key movements are shown in the chart below. Underlying earnings per share is consistent with prior year at 15.0 pence.

Underlying earnings (£m) - Chart 2

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Net rental income increased £13.0 million in 2017 to £460.0 million due to the acquisition of Madrid Xanadú in March 2017, the acquisition of the remaining 50 per cent of intu Merry Hill in June 2016 and 0.5 per cent growth in like-for-like net rental income, partially offset by the impact of the disposal of intu Bromley in December 2016.

Like-for-like net rental income increased by £2.1 million, 0.5 per cent, driven by rental growth from new lettings and rent reviews, partially offset by the impact of the redevelopment and reletting of the former BHS units which were fully income producing in the first half of 2016 (see operating review).

Administration expenses increased by £3.0 million in 2017 to £41.6 million, primarily due to increased headcount in Spain partially offset by a cost reduction programme in the second half of the year from which we will benefit in 2018.

Net finance costs have increased by £9.6 million in 2017 to £222.5 million primarily due to the increase in net external debt for the acquisition of Madrid Xanadú and capital expenditure in the year.

As discussed in the overview, profit attributable to owners of intu properties plc is £216.7 million, an increase from the £182.7 million reported for the year ended 31 December 2016.

Our investment in joint ventures contributed £35.5 million to the profit of the Group (2016: £32.1 million) including £18.3 million to underlying earnings (2016: £19.8 million) and a gain on property valuations of £15.9 million (2016: £14.2 million).

As detailed in the table below, our net rental income margin has reduced to 87.5 per cent primarily due to higher void costs from the former BHS units. Property operating expenses largely comprise car park operating costs and the Group's contribution to shopping centre marketing programmes. Our ratio of total costs to income, as calculated in accordance with EPRA guidelines, remains low at 15.1 per cent (see other information section).

Balance sheet

The Group's net assets attributable to shareholders have increased by £96.2 million to £5,075.0 million at 31 December 2017, while net assets (diluted, adjusted) have increased by £85.0 million to £5,522.7 million at 31 December 2017.

NAV per share (diluted, adjusted) at 31 December 2017 has increased 7 pence from the prior year to 411 pence, the key movements are shown in the chart below. This was driven principally by the revaluation surplus in the year of 4 pence and the timing impact within retained earnings of 4 pence in relation to our Spanish development partner Eurofund's expected future interest in the share capital of the intu Costa del Sol development company. The positive impact on retained earnings is expected to reverse, once these arrangements are concluded, with the Eurofund interest to be included in non-controlling interests during 2018. In this event NAV per share would be 407 pence.

Net asset value per share (pence) - Chart 3

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Investment and development property has increased by £248.0 million primarily due to capital expenditure of £246.7 million, the impact of the acquisition and subsequent 50 per cent disposal of Madrid Xanadú of £225.3 million and a surplus on revaluation of £47.3 million, partially offset by the £302.0 million transfer of intu Chapelfield to assets held for sale.

Our net investment in joint ventures is £735.5 million at 31 December 2017 (31 December 2016: £587.6 million), which includes the Group's share of net assets, on an equity accounted basis, of £452.6 million (31 December 2016: £355.4 million) and loans to joint ventures of £282.9 million (31 December 2016: £232.2 million). The movement in the year primarily reflects the addition of Madrid Xanadú from 31 July, when 50 per cent was sold to TH Real Estate, which is accounted for as a joint venture rather than as a 100 per cent owned subsidiary.

Investments in associates of £64.8 million represent our interests in India, which comprise a 32 per cent interest in Prozone (£45.1 million), a shopping centre developer listed on the Indian stock market, and a direct interest in Empire (£19.7 million). Prozone and Empire own and operate shopping centres in Coimbatore and Aurangabad, with Coimbatore recently opened in 2017.

Net external debt of £4,835.5 million has increased by £471.4 million primarily from funding our acquisition of Madrid Xanadú as well as capital expenditure in the year. Cash including the Group's share of joint ventures has reduced slightly by £13.4 million to £278.2 million and gross debt has increased by £458.0 million to £5,113.7 million.

Derivative financial instruments comprise the fair value of the Group's interest rate swaps. The net liability at 31 December 2017 is £349.8 million, a decrease of £30.2 million from 2016, primarily due to cash payments in the year and the increases in sterling swap rates, with the five-year and 10-year rates increasing by 17bps and 4bps respectively. Cash payments in the year totalled £47.1 million, £26.1 million of which has been classified as an exceptional finance cost as it relates to payments in respect of unallocated interest rate swaps. The balance of the payments has been included as underlying finance costs as it relates to ongoing interest rate swaps used to hedge debt.

As previously detailed, we have a number of interest rate swaps, entered into some years ago, which are unallocated due to a change in lenders' practice. At 31 December 2017 these interest rate swaps have a market value liability of £235.4 million (31 December 2016: £253.2 million). It is estimated that we will be required to make cash payments on these interest rate swaps of around £28.5 million in 2018, reducing to around £19 million per annum in 2021.

Assets and associated liabilities classified as held for sale of £302.9 million relate to intu Chapelfield.

The non-controlling interest at 31 December 2017 relates primarily to our partner's 40 per cent stake in intu Metrocentre.

We are exposed to foreign exchange movements on our overseas investments. At 31 December 2017 the exposure is 10.6 per cent of net assets attributable to shareholders. Once the Eurofund expected future interest in the share capital of the intu Costa del Sol development company concludes, we expect this to reduce to 9.7 per cent, below the Group's policy of a maximum of 10 per cent.

Cash flow

During 2017 cash and cash equivalents decreased by £26.6 million.

Cash flows from operating activities of £140.9 million is £9.5 million higher than 2016, primarily due to the acquisitions in the year.

Cash flows from investing activities reflect the net cash outflow for our acquisition and then subsequent 50 per cent part disposal of Madrid Xanadú as well as cash outflows related to capital expenditure during the year.

Cash flows from financing activities include net debt drawdowns of £539.2 million primarily to fund our acquisition of Madrid Xanadú as well as development spend. We paid cash dividends during the year of £188.0 million.

Financing

Debt structure

We have carried out significant refinancing activity in recent years which has resulted in diversified sources of funding, including secured bonds plus syndicated bank debt secured on individual or pools of assets, with limited or no recourse from the borrowing entities to other Group companies outside of these arrangements. Our corporate-level debt remains limited to the Revolving Credit Facility (RCF) as well as the £375 million 2.875 per cent convertible bonds 2022 and £160.4 million outstanding in respect of the 2.5 per cent convertible bonds 2018.

During 2017 we undertook the following financing activities:

· agreed a new £140 million facility secured against intu Milton Keynes, replacing the previous £125 million loan, maturing in 2019

· agreed a €263 million (£231 million) facility in connection with the acquisition of Madrid Xanadú, maturing in 2022; intu's share is €131.5 million

· agreed a new £488 million facility secured on intu Merry Hill, replacing the previous £500 million short-term facility put in place in 2016 on acquisition of the remaining 50 per cent, maturing in 2024

· agreed a £250 million loan secured on intu Trafford Centre, maturing in 2022

· purchased and subsequently cancelled £139.6 million of the £300 million 2.5 per cent convertible bonds 2018. £160.4 million of these convertible bonds remain outstanding at 31 December 2017

Since the year end, we have agreed a new £74 million facility secured on our interest in intu Chapelfield, maturing in 2023.

Debt maturity (£m) - Chart 4

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The chart above illustrates that we have no major refinancing requirement due until 2021.

Debt measures

1 Pro forma for the £148 million disposal of 50 per cent part of intu Chapelfield.

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

On a pro forma basis, our debt to assets ratio has increased to 45.2 per cent since 31 December 2016 due to the acquisition and part disposal of Madrid Xanadú and remains below our target maximum level of 50 per cent. Our weighted average debt maturity has decreased to 6.6 years and the weighted average cost of debt has decreased slightly to 4.2 per cent (excluding the RCF).

Interest cover of 1.94x is broadly unchanged in the year and remains above our targeted minimum level of 1.60x.

We use interest rate swaps to fix interest obligations, reducing any cash flow volatility caused by changes in interest rates. The proportion of debt with interest rate protection on a pro forma basis has increased in the year to 95 per cent within our policy range of between 75 per cent and 100 per cent.

Covenants

Full details of the debt financial covenants are included in the other information section of this report. We are in compliance with all of our covenants and regularly stress test them for changes in capital values and income. A 25 per cent fall in property values and a 10 per cent reduction in income would only require a £6 million equity cure.

Capital commitments

We have an aggregate commitment to capital projects of £267.6 million at 31 December 2017 (31 December 2016: £257.0 million).

In addition to the committed expenditure, we have an identified uncommitted pipeline of active management projects, major extensions and developments that may become committed over the next three years (see operating review).

Other information

Tax policy position

The Group has tax exempt status in the UK (REIT) and for certain investments in Spain (SOCIMI) which provide exemption from corporation tax on rental income and gains arising on property sales, with tax instead being paid at shareholder level. See glossary for further information on REITs and SOCIMIs.

The Group's principle of good governance extends to our responsible approach to tax. We look to minimise the level of tax risk and at all times seek to comply fully with our regulatory and other tax obligations and to act in a way which upholds intu's reputation as a responsible corporate citizen by regularly carrying out risk reviews, seeking pre-clearance from HMRC in complex areas and actively engaging in discussions regarding proposed changes in the taxation system that might affect the Group. It remains important to our stakeholders that our approach to tax is aligned to the long-term values and strategy of the Group.

We have published 'intu's Approach to Tax' in respect of the year ending 31 December 2017 on the Group's website intugroup.co.uk which provides further information about the Group's tax strategy.

We pay tax directly on overseas earnings, any UK non-property income under the REIT rules, business rates and transaction taxes such as stamp duty land tax. In the year ended 31 December 2017 the total of such payments to tax authorities was £28.5 million (2016: £20.6 million), of which £26.0 million (2016: £20.0 million) was in the UK and £2.5 million (2016: £0.6 million) in Spain. In addition, we also collect VAT, employment taxes and withholding tax on dividends for HMRC and the Spanish tax authorities. Business rates, principally paid by tenants, in respect of the Group's UK properties amounted to around £280.6 million in 2017 (2016: £292.2 million).

Dividends

The Directors are recommending a final dividend of 9.4 pence per share bringing the amount paid and payable in respect of 2017 to 14.0 pence, unchanged from 2016. A scrip dividend alternative may be offered. Details of the apportionment between the PID and non-PID elements per share will be confirmed in due course.

At 31 December 2017, the Company has distributable reserves of £977 million, sufficient to cover around five years of dividends at the 2017 level. The Company typically pays dividends which are covered by the current year earnings of the Group and does not anticipate that the Group's level of distributable reserves will create any restrictions on this approach in the foreseeable future.

PRINCIPAL RISKS AND UNCERTAINTIES

Fully integrated and thorough risk analysis underpins the ability to achieve our strategic objectives. The Board and Executive Committee have undertaken a robust assessment of the principal risks we face, including those that would impact the business model, future performance, solvency and liquidity. This assessment is not limited to purely financial metrics but spans the whole business model, including environmental, social and employee matters, respect for human rights and anti-corruption and anti-bribery matters.

We have identified principal risks and uncertainties under five key headings: property market; operations; financing; developments and acquisitions; and brand. These are discussed in detail on the following pages. A principal risk is one which has the potential to significantly affect our strategic objectives, financial position or future performance and includes both internal and external factors. We monitor movements in likelihood and severity such that the risks are appropriately managed in line with the Group's risk appetite.

The risk profile for 2017 has remained broadly in line with 2016 with no significant new principal risks identified nor substantial changes in existing principal risks. Where the likelihood for certain risks has increased additional risk mitigation strategies have been put in place. We have also assessed the impact of the proposed transaction with Hammerson plc on our principal risks.

The main impact from the UK's decision to exit the EU on the risks that the Group faces is the potential negative impact on the macro-economic environment as a result of the continuing uncertainty around transitional and post-Brexit arrangements. Specifically, the risks we face are affected by any changes in sentiment in the investment and occupier markets in which we operate, in our ability to execute our recycling and investment plans and in broader consumer confidence and expenditure.

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 2017 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 ('IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the Directors are required to:

(a) select suitable accounting policies and then apply them consistently

(b) make judgements and accounting estimates that are reasonable and prudent

(c) state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements

(d) prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and the Group's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the governance section 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 strategic report within 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 22 February 2018

David FischelChief Executive

Matthew RobertsChief Financial Officer

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2017

Details of underlying earnings are presented in the underlying profit statement in the other information section. Underlying earnings per share are shown in note 8(c).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2017

CONSOLIDATED BALANCE SHEET

at 31 December 2017