INTU.L Regulatory News (INTU)

26 JULY 2018

LEI: 213800JSNTERD5CJZO95

INTU PROPERTIES PLC

INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2018

WINNING DESTINATIONS DRIVE A RESILIENT PERFORMANCE IN A CHALLENGING MARKET

David Fischel, intu Chief Executive, commented:

"During a period of weakening sentiment in the retail market which has impacted prime shopping centre valuations, intu has delivered a resilient operational performance in the first half of 2018. This reflects the high quality of our business which was able to perform in a challenging retail environment.

Our occupancy level remains high at 97 per cent with aggregate lettings 6 per cent ahead of previous rents.

Like-for-like net rental income grew for the fourth consecutive year, by 1.3 per cent in the period, driven by new lettings and rent reviews, despite a 0.9 per cent hit from tenant failures.

We agreed 116 long term leases amounting to £16 million of annual rent to a number of new international entrants, as well as established key fashion brands such as Zara, River Island, Abercrombie & Fitch, Jo Malone, Jack Wills and The White Company.

We look forward to the opening of the £180 million intu Watford extension in October, followed by the £72 million intu Lakeside leisure extension in the first half of next year.

The Spanish business again had a strong six months with high occupancy and strong letting activity.

intu is the UK's only national consumer facing shopping centre brand with a growing digital presence, attracting 400 million customer visits per annum, with over half the UK population visiting an intu centre each year.

intu centres are in prime locations with high footfall and offer plenty of opportunities to increase density through additional mixed use developments. They have remained prime because we have always adapted and responded vigorously to the ever changing retail environment with continued investment and creative asset management satisfying the needs of retailers."

Investor presentation

A presentation to analysts and investors will take place at UBS, 5 Broadgate, London EC2 at 09.45BST on 26 July 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.

CONTENTS

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 10 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 (loss)/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 (loss)/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 FOR THE FIRST SIX MONTHS OF 2018

Financial highlights1

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 IFRS figures.

4 31 December 2017 including intu Chapelfield which is classified as an asset held for sale.

5 See note 11 for reconciliation between presented figures and IFRS net asset value per share.

6 31 December 2017 figure pro forma for the net initial consideration of £148 million on 50 per cent disposal of intu Chapelfield which completed on 31 January 2018.

Our results for the period show a resilient operating performance with stable underlying earnings and continued like-for-like net rental income growth. Uncertainty around the UK economy is leading to weakening sentiment in the retail property investment market, impacting property valuations:

- like-for-like property values reduced in the period with a total deficit of £650.4 million

- net rental income reflects £4.0 million impact of disposals; like-for-like net rental income growth of 1.3 per cent

- underlying earnings of £98.5 million, in line with the first half of 2017

- loss for the period of £503.4 million against a profit of £122.7 million in 2017, primarily from the property revaluation deficit

- underlying earnings per share (7.3 pence) and interim dividend (4.6 pence) unchanged

- net asset value per share (diluted, adjusted) of 362 pence (31 December 2017: 411 pence), the decrease due to the property revaluation deficit. NNNAV per share is 309 pence (31 December 2017: 349 pence)

- debt to assets ratio is 48.7 per cent, with substantial cash and available facilities of £739 million (31 December 2017: £833 million)

Property valuations

Property values fell in the period, resulting in a revaluation deficit of £650.4 million, a reduction of 5.6 per cent on a like-for-like basis. This is driven by weakening sentiment in the UK retail property investment market as illustrated by the low levels of transactions (see operating review). The valuers' assumption is that investors will focus on and seek higher net initial yields. In the period, intu's average net initial yield has increased by 33 basis points to 4.69 per cent.

Operating highlights

Growing like-for-like net rental income

Growing our net rental income drives earnings and ultimately dividend and total property return

- like-for-like net rental income increased by 1.3 per cent in the period, driven by increased rents from new lettings and rent reviews, building on increases averaging 2.0 per cent per annum over the last three years

- anticipated full year like-for-like net rental income growth to be at the lower end of the stated range of 1.5 per cent to 2.5 per cent, with new lettings mitigating the impact of administrations and company voluntary arrangements (CVAs) to date

- targeting medium term like-for-like net rental income growth of 2 to 3 per cent per annum over the next three to five years

- signed 116 long-term leases (85 in the UK and 31 in Spain) delivering £16 million of annual rent at an average of 6 per cent above previous passing rent and in line with valuers' assumptions (H1 2017: 103 leases; £18 million of annual rent; 6 per cent above previous passing rent)

- rent reviews settled in the period on average 10 per cent above previous passing rent (H1 2017: 8 per cent)

- sustained high EPRA occupancy of 96.6 per cent (December 2017: 97.0 per cent) with 79 stores opening in the period against 94 closing (excluding Christmas temporary lettings), reflecting the trend of retailer upsizing

Delivering operational excellence

Operational excellence measures the success of our business from the view of both our retailers and customers

- footfall decreased by 1.3 per cent (H1 2017: down 0.5 per cent) outperforming the national ShopperTrak retail average which fell by 3.3 per cent in the period. Excluding the two weeks of severe snow, footfall in our centres was broadly unchanged

- net promoter score, our measure of customer service, running consistently high averaging 73 in the period (H1 2017: 70)

- brand awareness increased to 29 per cent on an unprompted basis (December 2017: 26 per cent) and to 75 per cent on a prompted basis (December 2017: 71 per cent)

- intu.co.uk, our online shopping platform providing strong editorial content, has seen over 200 per cent year-on-year increase in visits to our 'Shop Insider' digital magazine pages, with sales for retailers increasing by 28 per cent

Optimising our winning destinations

Ensuring our regional destinations remain the winning locations by having a compelling mix of retail, catering, leisure, events and strong digital engagement

- capital investment by intu of £102 million in the period including £44 million on the 380,000 sq ft extension of intu Watford which is on target to open in October 2018 and £19 million on the Nickelodeon anchored leisure extension at intu Lakeside

- tenants have invested £31 million in the period on new shop fits, with 107 stores open or refitted

- have appointed main contractor and intend to commence the £72 million extension and enclosure of Barton Square at intu Trafford Centre in the second half of 2018

- final detailed design of intu Costa del Sol ongoing with the plan to commence construction in 2019

- near-term committed and pipeline of projects through to the end of 2020 of £441 million

- actively pursuing non-retail development opportunities, particularly around super-regional centres, including residential, distribution and leisure

Making smart use of capital

Our financial structure and high-quality assets allow us to access capital and introduce partners to increase the focus and achieve superior returns on our flagship locations

- completed the disposal of 50 per cent of intu Chapelfield for net initial consideration of £148 million, in line with the December 2016 market value. Subsequently agreed a £74 million debt facility on our retained interest in intu Chapelfield

- cash and available facilities of £739 million (31 December 2017: £833 million). Weighted average debt maturity of 6.3 years, with minimal refinancing until 2021

- substantial headroom on our debt covenants. By way of example, a further 20 per cent fall in capital values and 10 per cent fall in income would create a covenant shortfall of only £18 million which could be cured from available facilities

CHIEF EXECUTIVE'S REVIEW

A resilient operating performance in a challenging UK economy

Reflecting the overall high quality of our business, intu has continued to deliver a resilient operating performance in a challenging economic environment. Reflecting the superior quality of our portfolio, our occupancy level is high at 97 per cent. Aggregate lettings of £16 million were 6 per cent ahead of previous rents and in line with valuers' assumptions. Net rental income grew on a like-for-like basis by 1.3 per cent despite a 0.9 per cent impact from tenant failures and we are guiding to a stronger second half year. Underlying earnings per share remained stable at 7.3 pence.

In the pre-Brexit period, the UK economy has remained sluggish. The sentiment towards retail and retail property has been extremely negative, fuelled by a number of retailers, in particular New Look and House of Fraser, and restaurant chains entering high profile CVAs or administrations. While the direct financial impact on intu from CVAs and administrations has been minimal, they have dampened the retail property investment market with our property valuations decreasing by 5.6 per cent on a like-for-like basis, principally as a result of increased investment yield.

Well positioned to prosper as a standalone business

As these results demonstrate, intu is strongly placed to prosper as a standalone business, given our exceptional market positioning as the leading operator in the UK regional shopping centre industry, with the only national consumer facing brand and over 400 million customer visits per annum from over half the UK's population.

Demand from high-quality tenants for our winning destinations

Both cyclical factors, such as the flat UK economy and pressure on disposable incomes, and structural factors, such as increased costs and the growth in online retail, have combined to put pressure on retail market participants. However, quality retailers will emerge relatively stronger and we have achieved strong lettings in the period with, for example River Island, Zara, Abercrombie & Fitch and The White Company. In addition, we continue to diversify the mix of tenants introducing the likes of car manufacturer Mitsubishi and climbing operator Rock Up.

These participants recognise the increasing importance of the UK's winning physical destinations, such as intu's, in the multichannel world. 86 per cent by value of our £9.0 billion UK assets rank in the UK's top-25 shopping centre destinations.

Financial flexibility

On the financing front, we continue to have considerable financial flexibility as a result of (a) our focus on asset specific, non-recourse finance, which constitutes 86 per cent of our aggregate debt, and (b) 100 per cent ownership of £6.5 billion of our £9.8 billion assets.

Continuing investment in our centres

We have continued to invest in our centres. We look forward to the opening of the £180 million intu Watford extension in October, upgrading the centre to a top-20 UK destination. We will follow with the opening of the £72 million intu Lakeside leisure extension in the first half of 2019, greatly enhancing the overall family destination status of this top-five UK asset. We have committed to the £72 million enclosure of Barton Square at intu Trafford Centre, anchored by Primark, and expect to commit to the £81 million redevelopment of intu Broadmarsh in the second half of 2018.

Spanish business performing strongly

The Spanish business has again performed strongly. Operationally, we have high occupancy and strong letting activity, with property values increasing. On the development front, we are now in the detailed design phase for intu Costa del Sol and resolving final planning requirements which will allow us to commence this project during 2019.

Adapting and responding to the changing retail environment

We continue to focus intently on ensuring we are adapting and responding vigorously to the changing retail environment in the UK, improving the visitor experience through customer service initiatives, increased digital and leisure activities, changing tenant mix and continued investment in our centres.

In addition, there is clear evidence of demand for private rented sector or student residential projects at both super-regional centres and prime city centre locations which benefit from strong and improving public transport infrastructure as well as other key lifestyle services. Accordingly, we are dedicating additional resources to bringing forward these opportunities.

We are also focusing on the issues and opportunities facing our sector, looking at how we should further adapt to the changing market dynamics, what further opportunities exist to enhance our existing assets, how we ensure we continue to deliver superior operational performance and optimising the allocation of capital.

Conclusion

In conclusion, my thanks go to the team at intu who continue to excel and the impact of their great efforts, despite the distraction of corporate events and negative external sentiment towards our business sector, is demonstrated by the resilient results we have delivered in the period.

OPERATING REVIEW

intu and the UK market

A sluggish pre-Brexit UK economy

We are seeing very little change in intu centre visitor numbers in the pre-Brexit period where the continued uncertainty about the eventual outcome, and its impact, means the UK economy remains sluggish with modest growth.

On the positive side, unemployment remains at record low levels and, after a year of inflation running ahead of wage growth, this reversed in February 2018. Looking forward, Bank of England forecasts suggest that earnings should continue to outpace inflation through their forecast period to the end of 2020.

Against this, consumer confidence, as measured by GfK, continues to be challenging as it has been since the 2016 EU referendum vote, with consumers in pre-Brexit UK less confident about the economy.

A challenging time for retailers

Sales for retailers in our centres are robust given the mixed messages from improving disposable income, but low consumer confidence. UK total non-food retail spending (British Retail Consortium) fell by 0.6 per cent over the first half of 2018, with a fall of 2.3 per cent in physical store sales partially offset by an increase of 1.7 per cent in online sales highlighting the issues facing any retailers who are less advanced in their multichannel approach.

Some retailers face multiple challenges from lower spending, an increased cost base and a structural shift to multichannel retailing. Whilst some respite may come through as disposable income grows, leading to improving retailers' top line sales, they still face pressures on their net profit from increased business rates and national living wage. On top of this, the fast-paced change of online retailing leaves some retailers catching up.

In 2018, we have seen an increase in the number of administrations and CVAs as the pressures of an increased cost base and multichannel transformation mount on certain retailers and food and beverage operators.

The two most high profile CVAs in 2018 have been New Look and House of Fraser, planning to close 60 of 593 stores and 31 of 59 stores respectively. In both instances, their closure lists have been focused on secondary locations. This illustrates the polarisation occurring in the market where the best retail and leisure experiential destinations, such as intu's, are performing well against a weaker national position.

Polarisation in the market

We operate in many of the top UK retail destinations where retailers want to maintain their best stores and as such we have been relatively unaffected by the problems faced by certain retailers. This is in contrast with the media's continual focus on the issues facing retail and its impact on the UK high street, in particular those towns with many stores closing.

The administrations and CVAs in the period related to around 5 per cent of our passing rent. The majority of these (around 80 per cent) have had minimal impact with the retailers keeping the stores open on the existing rent or with a small reduction. Of the remainder, 10 per cent are trading on discounted rents and 10 per cent have closed.

Taking House of Fraser as an example, they have four stores in intu centres representing 1 per cent of our rent roll. Through their CVA, they are closing 31 of their 59 stores, but all of the intu stores are remaining open with a small rent reduction on only one unit. This highlights the quality of our centres and catchments and their ability to deliver profitable sales for retailers as part of their multichannel offer.

Investment market

The headwinds in the consumer and occupier market mean that investors remain cautious regarding shopping centres with sentiment weakening in the period. According to CBRE, 2017 had the lowest level of transactions since 2008 and volumes in the first half of 2018 remain subdued. There is an expectation that this situation will remain until the Brexit outcome becomes clearer.

In this market, it is anticipated that investors will seek a higher net initial yield to protect returns if capital growth is harder to deliver. Therefore, the quality and longevity of income streams increase in importance, along with the potential to add value through asset management.

These are the characteristics of most intu centres, with 86 per cent of our portfolio concentrated in ten centres, all of which are top-25 centres in the UK, with the next three all major schemes at the heart of thriving city centres in Nottingham, Newcastle and Milton Keynes.

UK asset valuation at 30 June 2018 - 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/7906V_1-2018-7-25.pdf

Valuation

The table above shows the main components of the £650.4 million property revaluation deficit:

- UK super-regional centres: performed stronger in comparison to other intu assets recognising the continuing attraction of this asset class which remains key to retailers' requirements. These centres have reduced in value by around 6 per cent, with the exception of intu Braehead, down 12 per cent, which continues to be impacted by the relatively weaker economic and political situation in Scotland

- UK major city centres: on average values have fallen by 8 per cent reflecting the limited transactional evidence and weaker investor demand for these types of assets. Within these assets, those super-prime assets in the busiest city centres have performed better, with smaller reductions at the likes of Manchester Arndale and intu Eldon Square, Newcastle

- Spanish centres: valuations have increased marginally given the continued demand for top quality Spanish centres

- Spanish developments: small decrease due to pre-development expenditure in the period on intu Costa del Sol

- UK other including developments: represents valuation movements on developments and assets valued below £200 million each. These assets, which represent only a small proportion of the portfolio, have seen higher revaluation deficits due to lower levels of potential asset management initiatives. The total for 31 December 2017 includes 100 per cent of intu Chapelfield, whereas 50 per cent is included at 30 June 2018

The weighted average net initial yield (topped-up) at 30 June 2018 increased by 33 basis points in the period to 4.69 per cent.

On a like-for-like basis, ERV decreased by 2.3 per cent as valuers have taken a more conservative view on rental values, in particular at certain centres such as intu Braehead and for larger space units. The IPD index indicated a 0.4 per cent decrease for the same period, with the divergence from intu's performance considered most likely to represent a timing difference with intu's valuations.

Growing like-for-like net rental income

Like-for-like net rental income growth is our key income measure. Given our relatively low cost base and stable finance costs, growing our net rental income drives earnings and ultimately dividend and total property return.

In the period, we grew like-for-like net rental income by 1.3 per cent, compared to a reduction of 1.5 per cent in the same period in 2017. The key components of the growth are shown in the table below.

Group like-for-like net rental income

1 Six months ended 30 June 2017 was originally disclosed as units held for redevelopment. Primarily related to units in administration, so disclosed on this basis in 2018.

Rent from lettings and rent reviews delivered 1.4 per cent rental growth. Against previous passing rent, lettings were on average up 6 per cent and rent reviews up 10 per cent.

Vacancy increased marginally in the period, resulting in a 0.3 per cent impact on net rental income.

The effect of administrations and CVAs was 0.9 per cent. This movement has been minimal to date given 5 per cent of our rent roll could have been impacted and illustrates the strength of our stores in the retailers' portfolios.

We are targeting a full year outcome of growth in like-for-like net rental income at the lower end of the stated range of 1.5 to 2.5 per cent (subject to no further material tenant failures) as we continue to deliver rental uplifts from new lettings and rent reviews and relet units closed from administrations and CVAs. Over the medium term of the next three to five years, we continue to target growth of 2 to 3 per cent per annum.

Like-for-like net rental income operating metrics

Occupancy is 96.6 per cent, in line with 30 June 2017 and 31 December 2017, with new lettings offsetting the closures in the period.

We agreed 116 long-term leases in the year, amounting to £16 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 period includes:

- new retail anchors, in the shape of key fashion brands, upsizing to optimise their offering and configuration. At intu Lakeside, Zara and River Island are both upsizing, trebling and doubling their space respectively

- international brands' ongoing appreciation of the attraction of intu's destination shopping centres. Abercrombie & Fitch is opening only its second UK store at intu Trafford Centre, House, the Australian homewares store, opening one of its first UK stores at intu Chapelfield and Xiaomi, the Chinese mobile phone company, opening its fifth store in Spain (and second in our portfolio) at intu Puerto Venecia

- brands recognising the benefit of standalone stores as part of their customer acquisition, with Jo Malone, Mitsubishi and Silent Night opening at intu Lakeside and The White Company at Cribbs Causeway

- leisure operators bringing a differentiated offering to our regional destinations with Rock Up, a climbing experience for all ages, set to open at intu Watford complementing the Cineworld and Hollywood Bowl leisure anchors at the intu Watford extension

A greater proportion of our lettings are now with well-financed global businesses, such as Inditex who are rolling out other brands in addition to Zara.

We settled 62 rent reviews in the year for new rents totalling £19 million, an average uplift of 10 per cent on the previous rents.

The weighted average unexpired lease term is 7.4 years (31 December 2017: 7.5 years) illustrating the longevity of our income streams.

The difference between our net rent (topped-up) of £463 million and ERV of £540 million represents £37 million from vacant and development units and reversion of £40 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. Net rent (topped-up) represents annual property income (see glossary) of £474 million plus contracted rent subject to a rent free period of £20 million, net of non-recoverable costs of £31 million.

Delivering operational excellence

The delivery of operational excellence underpins how we operate our centres. Through a range of metrics, we monitor our performance to ensure we are meeting both our customer and retailer requirements.

Operational metrics

Footfall in our centres has been robust considering the extreme weather events in the period with severe snow early in the year followed by the high temperatures for the last three months. Excluding the period of severe snow when some centres were closed, footfall was broadly unchanged, down 0.1 per cent in the period. Overall, our footfall decreased by 1.3 per cent in the period, but significantly outperformed the ShopperTrak measure of UK national retail footfall which was down on average by 3.3 per cent, highlighting the continued attraction of our compelling destinations against the wider market.

Estimated retailer sales in our centres were down 2.2 per cent. The main contributors to this are some of the larger space users, many of which have successful multichannel businesses. 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.

Our net promoter score, a measure of customer service, ran consistently high throughout the period averaging 73, an increase over 2017, and demonstrating our in centre operational excellence.

Putting customers first is embedded in our culture and the intu brand. The brand has continued to gain momentum and positions us well as the role of the shopping centre operator changes. Our measure of the brand, through its recognition with the public, continues to grow on both an unprompted and prompted basis. Of those questioned, 29 per cent mentioned intu when asked to name a shopping centre brand and 75 per cent knew of the brand when prompted.

These measures of customer satisfaction and recognition are a result of our national presence, attractive digital offering and in-house experiences team which offer retailers and brands promotional opportunities that deliver enticing events and experiences for our customers. Recognition and customer satisfaction are paramount to a shopper's likelihood to visit, which in turn drives footfall and extended dwell time.

In the period, promotional activity included Porsche opening a pop-up store at intu Trafford Centre, working with Apple to promote Apple Pay through our centres and launching our nationwide touring event Big Bugs on Tour to help reconnect adults and children with the importance of nature in our lives.

In addition to what we provide in centre, our attractive digital offering through our premium content publisher and shopping platform, intu.co.uk, continues to grow strongly and support retailers' physical operations. Online sales for retailers grew by 28 per cent in the period, year-on-year. This is driven for the most part by 'Shop Insider', the premium content section of the site, which saw over one million visits in the period, an increase of 222 per cent. 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.

The importance of identifying innovative ideas and services emerging in the UK retail market cannot be underestimated. intu Accelerate, a first for the shopping centre sector and now in its second year, is our incubator for innovative technologies and services. It identifies start-ups to pilot new concepts in centre and online and the 2018 cohorts include Rhythm, a company which creates multiplayer games for big screens where up to 200 players can take part using their mobile phones, with a recent event successfully held at intu Merry Hill.

Optimising our winning destinations

Our focus is to ensure our centres continue to be the winning destinations, where customers and retailers want to be, both now and in the future. Over the last three years, from 2015 to 2017, we have invested over £350 million in our centres, with a similar level of investment coming from our tenants.

Our near-term pipeline consists of projects that improve the position of our flagship centres to meet customer and retailer needs as we evolve the retail environments, enhance the catering mix and expand the leisure offer.

Investment in the period

In the first six months of 2018 we have invested £102 million in our centres on projects enhancing the value and appeal of these destinations. This includes £44 million on the intu Watford extension, £19 million on the leisure extension at intu Lakeside and £39 million on many other active asset management initiatives, including the aquarium at Madrid Xanadú and the restaurant quarter, Halle Place, at Manchester Arndale.

In addition, 107 units opened or refitted in our centres in the period (H1 2017: 84 stores), around 3 per cent of our 3,300 units. Tenants have invested around £31 million in these stores, a significant demonstration of their long-term commitment to our centres.

Near-term pipeline

Looking ahead, we are progressing our near-term investment pipeline of £441 million through to the end of 2020, reinforcing our existing assets and delivering value-enhancing returns.

We are committed to investing £235 million:

- at intu Watford we remain on target with our £180 million extension expected to open in October 2018. The 380,000 sq ft project, anchored by Debenhams and Cineworld, is 70 per cent let by space, with a further 20 per cent in advanced negotiations. In the period, we have exchanged with The Florist and Jack Wills. The cost to completion of this project is £37 million, and as previously stated, the complete project, including the refurbishment of the existing centre, is expected to deliver a return on cost of 6 to 7 per cent

- at intu Lakeside the construction of the £72 million leisure extension, a major attraction for the South East, has £38 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. We have pre-let 85 per cent of the space, including the four leisure attractions Nickelodeon, Flip Out, Puttshack and Hollywood Bowl

- at intu Trafford Centre, we have pre-let 60 per cent of the expansion and transformation of Barton Square and now appointed the main contractor. The £72 million project, expected to deliver a return of between 6 and 7 per cent, will enclose the courtyard, enhance interiors, allow trading from two levels and provide a fashion offer for the first time at Barton Square with Primark anchoring this development

- at intu Costa del Sol, we have committed £9 million to complete the final designs and resolve any outstanding planning matters so we will be in a position to place the building contracts in 2019 (see below for more details on the full project)

- active asset management projects total £80 million and include £18 million creating flagship stores for key fashion brands in our super-regional centres, £15 million enhancing the look and feel of intu Merry Hill and £5 million delivering the new leisure uses at Madrid Xanadú. 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 £206 million:

- at intu Broadmarsh we have a planned redevelopment which is expected to cost £81 million (£70 million until the end of 2020) and expected to deliver a stabilised initial yield of around 7 per cent. We have signed The Light cinema and Hollywood Bowl to anchor this leisure led scheme and, with 50 per cent of the project either exchanged or in advanced negotiations, we would expect to commit to this in the second half of 2018

- at intu Costa del Sol, we expect to clear the final planning matters in the next 12 months. With work on the final design on-going (see above), we are also targeting our required level of pre-lets in the next 12 months. This 230,000 sq m development is expected to cost around £580 million and open in 2022. Our business plan provides for the future introduction of a joint venture partner at the start of construction and limits our outlay on the project to around £130 million which we expect to be mostly funded by borrowings specific to the project

- active asset management projects total £100 million and are for projects of varying sizes across all centres. These projects are generally similar in nature and size to those active management projects that are committed

Future opportunities

Beyond 2020 we have a pipeline of future opportunities that will be brought forward as and when the tenant demand reaches the required level and any outstanding planning consents are approved. These projects will continue the evolution of our centres, ensuring we meet the future requirements of customers and tenants in our regional locations. The most advanced projects in this pipeline are the leisure extension we are proposing for intu Merry Hill and at intu Milton Keynes where we have received planning approval for a further 100,000 sq ft of space.

Making smart use of capital

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

Disposals

In January 2018, we completed the formation of a joint venture with LaSalle Investment Management for them to take ownership of 50 per cent of intu Chapelfield, Norwich for an initial net consideration of £148 million.

This takes our disposals in the last four years to over £1 billion as we have disposed of non-core assets and introduced partners on other centres.

We have flexibility for further disposals or part disposals, as around two-thirds of our portfolio is 100 per cent owned.

Debt activity

Following the disposal of 50 per cent of intu Chapelfield, we raised debt of £74 million on our remaining interest, and in April 2018, we amended and extended our €225 million term loan secured on intu Puerto Venecia, Zaragoza. The margin on this loan was reduced by 120 basis points and the maturity date extended from 2019 to 2025. In June 2018, we extended the loan on intu Milton Keynes from 2019 to 2021.

Robust financial structure

Our balance sheet is robust and we consider the structure of our borrowings, predominantly using flexible asset specific non-recourse arrangements (86 per cent of overall debt), to be appropriate for our concentrated portfolio.

Cash and available facilities at 30 June 2018 were £739 million and loan to value was 48.7 per cent, within our target range of 40 per cent to 50 per cent.

All facilities have substantial covenant headroom. By way of example, a 20 per cent fall in capital values, from the June 2018 valuations, and 10 per cent fall in income would create a covenant shortfall of only £18 million which could be cured from available facilities.

We have minimal debt maturities before 2021, with a weighted average debt maturity of 6.3 years at 30 June 2018.

With more than £5 billion of debt refinanced over the last five years, we have proven we have very good access to both the public and private capital markets and over this period reduced our weighted average cost of debt from 5.2 per cent to 4.1 per cent. Our average cost of debt includes legacy debt on intu Trafford Centre (£0.8 billion; cost of debt 6.0 per cent), which pre-dates the asset becoming part of the intu portfolio in 2011 and a first mortgage debenture stock 2027 (£0.2 billion; cost of debt 9.9 per cent) originally issued over 25 years ago. Excluding these two facilities, the weighted average cost of debt of all other facilities is 3.4 per cent.

External loans at 30 June 2018 - Chart 2

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OUR CENTRES

* 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 (loss)/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 £98.5 million for the six months ended 30 June 2018, in line with the same period in 2017. This reflects a 1.3 per cent growth in like-for-like net rental income as well as the impact of 2018 and 2017 acquisitions and disposals. Underlying earnings per share of 7.3 pence is unchanged from the same period in 2017.

The loss for the period attributable to owners of intu properties plc of £486.2 million, compared to a profit of £127.1 million for the same period in 2017 is driven primarily by the deficit on property revaluations of £650.4 million (same period in 2017: surplus of £17.7 million), partially offset by the change in fair value of financial instruments, a surplus of £75.1 million (same period in 2017: surplus of £18.7 million).

NAV per share of 362 pence has decreased 49 pence from 31 December 2017 largely due to the deficit on property revaluations. NAV per share continues to include a timing impact within retained earnings of 4 pence in relation to our Spanish development partner Eurofund's expected future equity interest in the intu Costa del Sol development. The positive impact on retained earnings is expected to reverse, once these arrangements are concluded. Following this event, NAV per share would be 4 pence lower.

In January we continued making smart use of capital, completing the 50 per cent joint venture sale of intu Chapelfield to LaSalle Investment Management (acting on behalf of Greater Manchester Pension Fund and West Yorkshire Pension Fund) for initial net consideration of £148.0 million. Subsequently, we arranged a £74.0 million loan facility, maturing in 2023 secured on our 50 per cent remaining interest. In accordance with IFRS, following the completion date, intu Chapelfield is now presented as a joint venture in our financial statements.

Our financing metrics continue to remain strong. During the period we refinanced our facility on intu Puerto Venecia, extended our facility on intu Milton Keynes and have secured financing on the remaining 50 per cent interest in intu Chapelfield. Our interest cover ratio of 1.95x is slightly higher in the period (31 December 2017: 1.94x) with satisfactory headroom above our target minimum level of 1.60x.

Income statement

Underlying earnings and underlying earnings per share of £98.5 million and 7.3 pence respectively are in line with the same period in 2017. The key movements of underlying earnings are shown in the chart below.

Key movements in underlying earnings - Chart 3

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Net rental income decreased £3.1 million in the six months ended 30 June 2018 to £223.1 million primarily due to the part disposal of intu Chapelfield in January 2018, the acquisition and part disposal of Madrid Xanadú in 2017, partially offset by growth in like-for-like net rental income.

Like-for-like net rental income increased by £2.7 million, 1.3 per cent, primarily driven by rental growth from new lettings and rent reviews (see operating review).

Administration expenses increased by £1.1 million in the six months ended 30 June 2018 to £21.7 million, broadly in line with the run rate in the second half of 2017.

Net finance costs have decreased by £2.0 million in the six months ended 30 June 2018 to £107.3 million primarily as a result of our ongoing refinancing programme. The net finance costs will increase in the second half and be similar to the second half of 2017 as capital projects come on stream.

As discussed in the overview, the loss attributable to owners of intu properties plc is £486.2 million, a decrease from the £127.1 million profit reported for the same period in 2017.

Our investment in joint ventures recorded a loss of £16.2 million, compared to a profit of £18.4 million for the same period in 2017. This includes underlying earnings of £14.2 million, an increase of £5.7 million from the same period in 2017 due to intu Chapelfield and Madrid Xanadú now included within investment in joint ventures, and a deficit on property revaluation of £33.0 million (same period in 2017: surplus of £8.5 million).

As detailed in the table below, our net rental income margin has improved slightly to 88.0 per cent due to marginally lower costs related to vacant units. Our ratio of total costs to income, as calculated in accordance with EPRA guidelines, remains low at 15.0 per cent (see other information section).

Balance sheet

The Group's net assets attributable to shareholders are £4,472.1 million, a decrease from £5,075.0 million at 31 December 2017, while net assets (diluted, adjusted) are £4,875.1 million, a decrease from £5,522.7 million at 31 December 2017.

Key movements in NAV per share (diluted, adjusted) - Chart 4

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NAV per share (diluted, adjusted) at 30 June 2018 has decreased 49 pence from the prior year to 362 pence, the key movements are shown in the chart above. This was driven principally by the deficit on property revaluations in the period of 48 pence. As noted in the overview, NAV per share continues to include a timing impact within retained earnings of 4 pence in relation to our Spanish development partner Eurofund's expected future equity interest in the intu Costa del Sol development. The positive impact on retained earnings is expected to reverse, once these arrangements are concluded. In this event NAV per share would reduce by 4 pence.

Investment and development property has decreased by £398.6 million primarily due to a deficit on revaluation of £650.4 million, partially offset by capital expenditure of £101.9 million and the recognition of the retained 50 per cent interest in intu Chapelfield, of which 100 per cent was classified as an asset held for sale at 31 December 2017.

Our net investment in joint ventures is £851.5 million at 30 June 2018 (31 December 2017: £735.5 million), which includes the Group's share of net assets, on an equity accounted basis, of £511.1 million (31 December 2017: £452.6 million) and loans to joint ventures of £340.4 million (31 December 2017: £282.9 million). The movement in the period primarily reflects the addition of intu Chapelfield from 31 January 2018 following the 50 per cent part disposal, which is now accounted for as a joint venture rather than as a 100 per cent owned subsidiary.

Investments in associates of £61.7 million primarily represent our interests in India, which comprises a 32 per cent interest in Prozone (£42.5 million), a shopping centre developer listed on the Indian stock market, and a direct interest in Empire (£19.2 million). Prozone and Empire own and operate shopping centres in Coimbatore and Aurangabad.

Net external debt of £4,792.0 million has decreased by £43.5 million primarily from proceeds from the part disposal of intu Chapelfield partially offset by capital expenditure in the period. Cash including the Group's share of joint ventures has reduced by £26.6 million to £251.6 million and gross debt has decreased by £70.1 million to £5,043.6 million.

Derivative financial instruments comprise the fair value of the Group's interest rate swaps. The net liability at 30 June 2018 is £306.6 million, a decrease of £43.2 million in the period, 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 27bps and 25bps respectively. Cash payments in the year totalled £23.6 million, £14.1 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 30 June 2018 these interest rate swaps have a market value liability of £209.1 million (31 December 2017: £235.4 million). It is estimated that we will be required to make cash payments on these interest rate swaps of £14 million in the second half of 2018, reducing to below £24 million per annum in 2020.

The non-controlling interest at 30 June 2018 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 30 June 2018 the exposure is 12.5 per cent of net assets attributable to shareholders, the increase from 31 December 2017 being primarily due to the deficit on property revaluations in the UK. Once the Eurofund expected future equity interest in the intu Costa del Sol development concludes, we expect this rate to reduce to closer to the Group's policy of a maximum of 10 percent, after which the appropriate level of exposure will be assessed.

Cash flow

During the period cash and cash equivalents decreased by £16.7 million.

Cash flows from operating activities of £48.1 million are £19.8 million lower than the same period in 2017, primarily due to the timing of payments.

Cash flows from investing activities reflects the cash inflow for the 50 per cent sale of intu Chapelfield in January and cash outflows related to capital expenditure during the period.

Cash flows from financing activities primarily reflect the cash dividends paid during the period of £120.9 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 due 2022 and £160.4 million outstanding in respect of the 2.5 per cent convertible bonds due in the second half of 2018.

During the period we undertook the following financing activities:

- agreed a new £74 million facility secured against our remaining 50 per cent interest in intu Chapelfield, maturing in 2023

- refinanced the €225 million facility secured against intu Puerto Venecia (our share €112.5 million), now maturing in 2025

- extended the £140 million facility secured against intu Milton Keynes by 18 months, now maturing in 2021

It is likely the £160.4 million outstanding in respect of the 2.5 per cent convertible bonds due in the second half of 2018 will be cash settled. The chart below illustrates that we have no major refinancing requirement due until 2021.

Debt maturity - Chart 5

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Debt measures

1 Pro forma for the net initial consideration of £148 million on 50 per cent disposal of intu Chapelfield.

Our debt to assets ratio has increased to 48.7 per cent since 31 December 2017 due to the deficit on property revaluation and remains within our target range of 40 per cent to 50 per cent. Our weighted average debt maturity has reduced marginally to 6.3 years and the weighted average cost of gross debt has reduced to 4.1 per cent (excluding the RCF).

Interest cover of 1.95x has remained stable and above our target 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 has decreased slightly in the period to 90 per cent within our policy range of between 75 per cent and 100 per cent.

Covenants

Further 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. By way of example, a 20 per cent fall in capital values and 10 per cent fall in income would create a covenant shortfall of only £18 million.

Capital commitments

We have an aggregate commitment to capital projects of £234.8 million at 30 June 2018 (31 December 2017: £267.6 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 coming years (see operating review).

Other

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 published 'intu's Approach to Tax' in respect of the year ended 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 six months ended 30 June 2018 the total of such payments to tax authorities was £15.1 million (same period in 2017: £13.1 million), of which £13.4 million (same period in 2017: £11.6 million) was in the UK and £1.7 million (same period in 2017: £1.5 million) in Spain. In addition, we also collect VAT, employment taxes and withholding tax on dividends for HMRC and the Spanish tax authorities.

Dividends

The Directors are recommending an interim dividend of 4.6 pence per share in line with the 2017 interim dividend. 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.

PRINCIPAL RISKS AND UNCERTAINTIES

intu's Board has responsibility for establishing the Group's appetite for risk on the balance of potential risks and returns, and has overall responsibility for identifying and managing risks. The Board has updated its assessment of the principal risks facing the Group, 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 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 the six months ended 30 June 2018 has remained broadly in line with the year ended 31 December 2017 with no significant new risk categories identified, although it is recognised that risks within the categories continue to evolve. Where risks have evolved additional risk mitigation strategies have been put in place.

The main impact from the UK's decision to exit the EU on the risks that the Group faces continues to be 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.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the interim report and condensed consolidated set of interim financial statements (interim financial statements), in accordance with applicable law and regulations. The Directors confirm that, to the best of their knowledge:

- the interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position, and profit and loss of the Group; and

- the interim report includes a fair review of the information required by Sections DTR 4.2.7R and DTR 4.2.8R of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Services Authority.

The operating and financial reviews refer to important events which have taken place in the period.

The principal risks and uncertainties facing the business are referred to in the operating and financial reviews.

Related party transactions are set out in note 23 of the interim financial statements.

Details, including biographies, of all current Directors are maintained on the intu properties plc website: intugroup.co.uk.

On behalf of the Board

David FischelChief Executive

Matthew RobertsChief Financial Officer26 July 2018

INDEPENDENT REVIEW REPORT TO INTU PROPERTIES PLC

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed intu properties plc's condensed consolidated interim financial statements (the "interim financial statements") in the interim report of intu properties plc for the 6 month period ended 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

- the consolidated balance sheet as at 30 June 2018;

- the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

- the consolidated statement of changes in equity for the period then ended;

- the consolidated statement of cash flows for the period then ended; and

- the explanatory notes to the interim financial statements.

The interim financial statements included in the interim report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the Directors

The interim report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLPChartered AccountantsLondon26 July 2018

CONSOLIDATED INCOME STATEMENT (unaudited)

for the six months ended 30 June 2018

Details of underlying earnings are presented in the underlying profit statement in the other information section. Underlying earnings per share are shown in note 10.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the six months ended 30 June 2018

CONSOLIDATED BALANCE SHEET (unaudited)

at 30 June 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)

for the six months ended 30 June 2018

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

for the six months ended 30 June 2018

NOTES (unaudited)

1 Basis of preparation

The condensed consolidated set of interim financial statements (interim financial statements) for the six months ended 30 June 2018 are unaudited and do not constitute statutory financial statements within the meaning of s434 of the Companies Act 2006. The interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with IAS 34 as adopted by the European Union.

The comparative information presented for the year ended 31 December 2017 is not the Group's financial statements for that year. Those financial statements have been reported on by the Group's auditors and delivered to the registrar of companies. The auditors' opinion on those financial statements was unqualified and did not contain an emphasis of matter paragraph or a statement made under Section 498 (2) or (3) of the Companies Act 2006.

The interim financial statements should be read in conjunction with the Group's Annual Report and financial statements for the year ended 31 December 2017 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Significant estimates and judgements

The preparation of interim financial statements in conformity with the Group's accounting policies requires management to make judgements and use estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these judgements and estimates are based on management's best knowledge of the amount, event or action, the actual result ultimately may differ from those judgements and estimates.

In preparing the interim financial statements, the areas of significant judgement made by management and the key sources of estimation uncertainty in applying the Group's accounting policies were the same as those applied to the Group's financial statements as at and for the year ended 31 December 2017. See page 112 of the Group's 2017 Annual Report and financial statements for details on significant use of estimates and assumptions as well as significant areas of judgement. During the period, management applied significant judgement assessing the control over joint arrangements following the part disposal of intu Chapelfield. See note 22 for further details.

Going concern

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

In preparing the most recent projections, factors taken into account include £251.6 million of cash (including the Group's share of cash in joint ventures of £41.4 million) and £487.2 million of undrawn facilities at 30 June 2018. The Group's weighted-average debt maturity of 6.3 years and the relatively long-term and stable nature of the cash flows receivable under tenant leases were also factored into the forecasts.

After reviewing the most recent projections and the sensitivity analysis, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the interim financial statements.

2 Accounting policies

The accounting policies and methods of computation applied are consistent with those of the Group's financial statements for the year ended 31 December 2017 as set out on pages 113 to 116 of the Group's 2017 Annual Report and financial statements, as amended when relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the period. Except as described below, these amendments have not had an impact on the interim financial statements.

This is the Group's first set of financial statements where IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers have been applied. The impacts on the interim financial statements on adoption of these standards are set out below:

IFRS 9 Financial Instruments - The standard applies to classification and measurement of financial assets and financial liabilities, impairment provisioning and hedge accounting. On adoption, the Group has made an opening adjustment to retained earnings of £14.0 million. An irrevocable election has also been made to recognise movements in other investments through other comprehensive income, consistent with the accounting treatment under the previous standard. No other changes have impacted the interim financial statements on adoption of the standard.

IFRS 15 Revenue from Contracts with Customers - The standard is applicable to service charge income and facilities management income, but excludes lease rental income arising from contracts with the Group's tenants. The adoption of this standard has not had a material impact on the interim financial statements.

A number of standards and amendments to standards have been issued but are not yet effective for the current period. The most significant of these is set out below:

IFRS 16 Leases (effective 1 January 2019) - This standard requires lessees to recognise a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Depreciation on the right-of-use asset and finance costs on the lease liability will be recognised in the income statement. This standard does not affect the current accounting for rental income earned. The Group has completed its impact assessment of the standard in the period, where the most significant operating leases identified are the Group's London and Madrid office leases. On adoption, the Group expects to apply the modified retrospective approach and will elect to not re-assess existing leases under the new standard. The Group expects to recognise a right-of-use asset and corresponding lease liability on its balance sheet of less than £5 million on adoption.

Taxes on income in interim periods are accrued using tax rates expected to be applicable to total annual earnings.

3 Seasonality and cyclicality

There is no material seasonality or cyclicality impacting the interim financial statements.

4 Segmental reporting

Operating segments are determined based on the strategic and operational management of the Group. The Group is primarily a shopping centre-focused business and has two reportable operating segments being the UK and Spain. Although certain areas of business performance are reviewed and monitored on a centre-by-centre basis, the operating segments are consistent with the strategic and operational management of the Group by the Executive Committee (the chief operating decision makers of the Group).

As mentioned in the financial review, management review and monitor the business primarily on a proportionately consolidated basis. As such, the segmental analysis has been prepared on a proportionately consolidated basis.

The key driver of underlying earnings which is used to measure performance is net rental income. An analysis of net rental income is provided below:

1 Relates to the profit attributable to non-controlling interests within the Group's investment in joint ventures.

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

Revenue, in respect of the above categories, is recognised over time in line with the performance obligations being satisfied.

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

The Group's geographical analysis of non-current assets is presented below. This represents where the Group's assets reside and, where relevant, where revenues are generated. In the case of investments this reflects where the investee is located.

5 Loss on disposal of subsidiaries

The loss on disposal of subsidiaries of £8.3 million includes a loss in respect of the part disposal of intu Chapelfield to a joint venture of £8.8 million (see note 22) offset by an adjustment in respect of the part disposal of Madrid Xanadú in 2017 of £0.5 million.

6 Administration expenses - exceptional

Exceptional administration expenses in the period totalled £6.3 million and relate principally to costs incurred in respect of the all-share offer made by Hammerson plc in 2017. These costs have been classified as exceptional based on their nature and incidence (see definition in the glossary).

7 Net finance costs

1 Finance costs of £7.2 million were capitalised in the six months ended 30 June 2018 (six months ended 30 June 2017: £2.0 million, year ended 31 December 2017: £4.9 million).

2 Amounts totalling £14.9 million in the six months ended 30 June 2018 (six months ended 30 June 2017: £12.2 million, year ended 31 December 2017: £33.0 million) are treated as exceptional items, as defined in the glossary, due to their nature and are therefore excluded from underlying earnings (see note 10). These finance costs include payments on unallocated interest rate swaps, payments on termination of interest rate swaps, amounts associated with modifications and extinguishments of borrowings, foreign currency movements and other fees.

3 Included within the change in fair value of derivative financial instruments are gains totalling £23.6 million (six months ended 30 June 2017: £22.8 million, year ended 31 December 2017: £47.1 million) resulting from the payment of obligations under derivative financial instruments during the period. Of these £14.1 million relate to unallocated swaps (six months ended 30 June 2017: £14.3 million, year ended 31 December 2017: £26.1 million).

8 Taxation

Taxation for the period:

Movements in the provision for deferred tax:

The net deferred tax provision of £20.2 million predominantly arises in respect of the revaluation of development property at intu Costa del Sol, partially offset by associated tax losses.

At 30 June 2018, the Group had unrecognised deferred tax assets calculated at a tax rate of 17 per cent (31 December 2017: 17 per cent, 30 June 2017: 17 per cent) of £47.8 million (31 December 2017: £43.1 million, 30 June 2017: £43.6 million) for surplus UK revenue tax losses carried forward, £36.8 million (31 December 2017: £45.6 million, 30 June 2017: £43.9 million) for temporary differences on derivative financial instruments, £0.5 million (31 December 2017: £0.5 million, 30 June 2017: £0.6 million) for temporary differences on capital allowances, £0.2 million (31 December 2017 and 30 June 2017: nil) for other investments and £5.7 million (31 December 2017: £5.8 million, 30 June 2017: £5.8 million) for capital losses.

In accordance with the requirements of IAS 12 Income Taxes, the deferred tax asset has not been recognised on the Group's balance sheet due to uncertainty over the level of profits that will be available in the non-REIT elements of the Group in future periods.

9 Dividends

10 Earnings per share

(a) Number of shares

1 The weighted average number of shares used has been adjusted to remove shares held in the Employee Share Ownership Plan (ESOP).

2 Basic shares is used to calculate EPRA earnings per share and underlying earnings per share.

3 Diluted shares includes the impact of dilutive convertible bonds, share options and share awards.

(b) Earnings per share

Basic and diluted earnings per share is calculated in accordance with IAS 33 Earnings Per Share.

Underlying earnings per share is a non-GAAP measure but has been presented as it is considered to be a key measure of the Group's recurring performance and an indication of the extent to which dividend payments are supported by underlying operations (see underlying profit statement in other information). It excludes property and derivative movements, exceptional items and related tax. The key difference from EPRA earnings per share, an industry standard comparable measure which seeks to assist comparison between European property companies, relates to adjustments in respect of exceptional items where EPRA is prescriptive about the adjustments that can be made. Underlying earnings is defined as an alternative performance measure in the financial review. A reconciliation from EPRA earnings per share to the Group's measure of underlying earnings per share is provided below: