Audited results for year ended 31 December 2018

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 eight of the top-20, 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 around 400 million customer visits and 26 million website visits a year offering a multichannel approach that truly supports retail strategies.

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 tenants flourish, driving occupancy and income growth.

We are committed to our local communities, with our centres supporting nearly 130,000 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 profit/loss 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.

Investor presentation

A presentation to analysts and investors will take place at UBS, 5 Broadgate, London EC2 at 09.30GMT on 20 February 2019. 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.

This annoucement 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 announcement 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 2018

1 Including Group's share of joint ventures. See other information section for reconciliations between presented figures and IFRS figures.

2 31 December 2017 including intu Chapelfield which was classified as an asset held for sale.

3 See notes 8 and 9 for reconciliations between presented figures and IFRS figures.

4 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 year show a resilient operating performance with a continued like-for-like net rental income growth. The uncertainty around the UK economy and the challenging retail background are leading to weakening sentiment in the retail property investment market, impacting property valuations:

- property values reduced in the year by 13.3 per cent with a total revaluation deficit of £1,405.0 million (see below)

- like-for-like net rental income growth of 0.6 per cent (£2.3 million) driven by increased rents from new lettings (+6 per cent ahead of previous rent) and rent reviews (+7 per cent ahead of previous rent) partially offsets £11.8 million impact from disposals and developments

- underlying earnings of £193.1 million, impacted by disposals and development activity in 2018

- loss for the year of £1,173.7 million, an increase of £1,377.0 million, primarily from the property revaluation deficit

- underlying earnings per share of 14.4 pence, 0.6 pence lower than 2017 reflecting the impact of disposals and developments

- NAV per share (diluted, adjusted) of 312 pence, down 99 pence, the decrease due to the property revaluation deficit. NNNAV per share is 271 pence, reducing by 78 pence

- debt to assets ratio is 53.1 per cent. Net external debt largely unchanged at £4,867 million, with cash and available facilities of £548 million

Property valuations

In a challenging year for the whole retail real estate sector, intu reported a 6.2 per cent valuation fall in the period to 30 June 2018 and a further 3.0 per cent in the quarter to 30 September 2018 with the full year reduction in our assets amounting to 13.3 per cent (£1,405.0 million).

This is driven by weakening sentiment in the UK retail property investment market as illustrated by the low levels of transactions (see market trends). The valuers' assumption is that investors will focus on and seek higher net initial yields. In the year, intu's average net initial yield (topped-up) has increased by 62 basis points to 4.98 per cent.

Additionally, given the current challenges for certain department stores, the valuers have taken a more conservative view on ERVs for larger space units. On a like-for-like basis, ERVs decreased by 3.9 per cent.

Operating highlights

Growing like-for-like net rental income

- like-for-like net rental income increased by 0.6 per cent in the year, driven by increased rents from new lettings and rent reviews and impacted by some 1.9 per cent from tenant failures

- anticipate 2019 full year change in like-for-like net rental income, including the impact of House of Fraser, to be down by 1 to 2 per cent (subject to no new material tenant failures)

- signed 248 long-term leases (187 in the UK and 61 in Spain) delivering £39 million of annual rent at an average of 6 per cent above previous passing rent (like-for-like units) and in line with valuers' assumptions (2017: 217 leases; £38 million of annual rent; 7 per cent above previous passing rent)

- rent reviews settled in the year on average 7 per cent above previous passing rent (2017: 9 per cent)

- sustained high occupancy of 96.7 per cent (December 2017: 97.0 per cent)

Delivering operational excellence

- footfall decreased by 1.6 per cent (2017: up 0.1 per cent) outperforming the national ShopperTrak retail average which fell by 3.5 per cent in the year

- net promoter score, our measure of customer service, improved in the year averaging 75 (2017: 70)

- brand awareness increased to 28 per cent on an unprompted basis (December 2017: 26 per cent) and to 76 per cent on a prompted basis (December 2017: 71 per cent)

Optimising our winning destinations

- capital investment by intu of £201 million in the year including £67 million on the 380,000 sq ft extension of intu Watford which opened in September 2018 and £40 million on the leisure extension at intu Lakeside, anchored by Nickelodeon, Puttshack and Hollywood Bowl

- record tenant investment of £144 million on new shopfits in 2018, with 262 stores opened in the year (2017: £89 million; 259 stores)

- commenced the £75 million extension and enclosure of Barton Square at intu Trafford Centre which will be anchored by Primark and is due to open in early 2020

- appointed the main contractor on the £89 million mixed-use regeneration of intu Broadmarsh which will be anchored by The Light cinema and Hollywood Bowl

- near-term committed and pipeline of projects through to the end of 2021 of £428 million

- actively pursuing non-retail development opportunities, particularly around super-regional centres, including residential with, for example, the potential for over 1,000 private-rented-sector residential units at intu Lakeside

Making smart use of capital

- 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. Other disposals of sundry assets amounted to £23 million, 6 per cent ahead of December 2017 valuations

- we have refinanced or entered new facilities of over £500 million, including development finance loans on intu Trafford Centre's Barton Square and intu Broadmarsh

- cash and available facilities of £548 million (31 December 2017: £833 million). Weighted average debt maturity of 5.8 years, with minimal debt maturities until 2021

- substantial headroom on our loan to value debt covenants. By way of example, a further 10 per cent fall in capital values would create a covenant shortfall of only £1 million which could be cured from available facilities

Chief Executive's review

Introduction - a challenging year

2018 has been an eventful and challenging year for intu.

The UK economy has struggled through a third year of pre-Brexit political uncertainty. Specific to intu, we had to overcome the disruption from two public company offers, neither of which, for reasons outside our control, ultimately concluded.

I would like to thank the executive team and all intu staff for their outstandingly resolute and determined performance through these events which coincided with significant industry challenges.

In terms of UK economic data most relevant to intu, non-food retail sales were essentially static year-on-year, but online sales continued to grow so physical sales shrank. In fact, in-store non-food retail sales in the UK have shown a year-on-year reduction every month for the last two years. Retailer costs, by contrast have not declined, not least as a result of the significant burden of the UK's property tax known as business rates.

Retailer failures therefore picked up substantially, impacting our net rental income by an estimated 1.9 per cent. Increasingly negative investor sentiment towards retail property fed through to a 13.3 per cent fall in the valuations of our UK assets.

In the face of this adversity, shareholders have seen the share price decline to a level representing for intu a virtually unprecedented discount to NAV per share (diluted, adjusted) of over 60 per cent.

Plans to reduce debt to assets ratio

Our debt to assets ratio at 31 December 2018 was 53 per cent, exceeding the Board's target maximum of 50 per cent.

We propose to take the following steps to lower the Group's debt to assets ratio over time to back below 50 per cent and lower the share price discount:

- retaining for the time being the cash generated by our activities rather than distributing it as dividend, commencing with no final dividend for 2018 (2017 final dividend: 9.4 pence). In 2018 we paid dividends of £188 million based on an annual dividend per share of 14.0 pence. Retaining the dividend will enable us to continue to invest in our winning destinations

- through further disposals and part-disposals in due course in both the UK and Spain. Following £171 million of disposals in 2018, we will continue to recycle capital from individual assets. We consider substantial sales in the UK as challenging until a political resolution on the Brexit issue is achieved and not in shareholders' interest while market sentiment towards UK retail property is so negative. In Spain we have received a number of unsolicited offers which we are evaluating

Resilient 2018 operating performance

Despite negative external factors, intu demonstrated considerable resilience in its operating performance through a challenging period, evidence of the underlying quality of the intu business. This includes ownership of eight of the UK's top-20 centres, which amount to 69 per cent of our property assets by value, and three of the top-10 centres in Spain.

intu has reported a 0.6 per cent increase in like-for-like net rental income despite the retailer failures referred to above, stable occupancy around 97 per cent, and 248 new leases signed (2017: 217) at 6 per cent above previous rents. Lettings included an attractive mix of new and established names, significantly refreshing the centres, among them Abercrombie & Fitch, Uniqlo, Bershka and Monki, with the likes of Next, Primark, Zara and River Island all upsizing.

As we operate in many of the top UK retail destinations where retailers want to maintain their best stores, like-for-like net rental income performance was robust despite recent administrations and CVAs. The administrations and CVAs in the year relate to around 6 per cent of our passing rent, but the majority of these (72 per cent) have had minimal impact with the retailer keeping their stores open on the existing rent or with a small reduction.

Underlying earnings per share reduced from 15.0p to 14.4p mainly as a result of the income impact from disposals.

Fall in property valuations

After two years of essentially unchanged valuations for our UK centres, 2018 saw investor sentiment turn against retail property.

We reported a 6.2 per cent fall in property values in the six months to 30 June 2018 and a further 3.0 per cent in the quarter to 30 September 2018, with the full year reduction in our assets amounting to 13.3 per cent. Net initial yield (topped-up) climbed over the year from 4.36 per cent to 4.98 per cent and was the primary factor driving NAV per share (diluted, adjusted) down in the year from 411 pence to 312 pence.

By way of illustration of the impact on intu, a further 10 per cent fall in valuations, amounting to approximately a further £920 million reduction and 22 per cent overall since the beginning of 2018, would reduce NAV per share (diluted, adjusted) to around 243 pence from 312 pence and EPRA NNNAV per share to around 202 pence from 271 pence.

Focus on winning destinations

With the structural changes going on in our industry, we regard it as increasingly important that intu focuses on centres which rank as winning destinations where customers love to come and retailers want to be.

Alongside best retail, food, beverage and leisure, we intend to add further mixed-use attractions to these centres in the form of improved public space with more frequent experiences, residential space, hotels and other uses such as state-of-the-art office and co-working space.

Our retailers regularly confirm to us the importance of flagship physical stores in centres such as ours for their overall offer to consumers, with around 85 per cent of all transactions estimated to still touch a store. Our target is that every store in our centres should rank in the retailer's top quintile of UK stores - ideally as many as possible in their top-20 stores.

Continuing investment programme

We and our tenants have continued to invest in our centres in 2018. We invested £201 million which included completing the transformational extension of intu Watford that promotes Watford to a top-20 UK retail destination and handing over units to be fitted out at our exciting leisure extension at intu Lakeside which is 93 per cent pre-let and due to open in spring 2019. Our tenants invested around a further £161 million - £144 million introducing their latest shopfits and £17 million on maintenance expenditure.

Our pipeline over the next three years of £428 million includes £82 million on the regeneration of intu Broadmarsh which will be anchored by The Light cinema, the transformation and expansion of Barton Square at intu Trafford Centre, introducing Primark to the centre, and the creation of the new generation 255,000 sq m shopping resort intu Costa del Sol, near Málaga in Spain.

2019 objectives

We have set three strategic objectives for 2019:

- delivering strong underlying individual centre performance

- adapting fast to a changing retail environment

- making smart use of capital

The first two objectives are to be measured by a number of key performance indicators, similar to those currently reported.

In terms of the third objective, making smart use of capital, the events of 2018 have impacted our views on capital allocation, especially as a result of the discount to NAV per share (diluted, adjusted) widening to an unprecedented 64 per cent between the reported NAV per share (diluted, adjusted) of 312 pence and the share price of 113 pence as at 31 December 2018.

Expressed another way, the year-end share price reflects a 29 per cent discount to gross assets of £9.2 billion. The implied initial yield on our assets to a shareholder at this share price is currently 7.03 per cent rather than the published net initial yield(topped-up) according to the year-end property valuations of 4.98 per cent.

Financial strength

We have cash and available facilities of £548 million. Net external debt was largely unchanged at £4,867 million and we have refinanced or entered new facilities of over £500 million in 2018 illustrating that debt markets continue to be supportive of our highest quality retail property. We consider the structure of our borrowings, predominantly using flexible asset specificnon-recourse arrangements, to be appropriate for our concentrated portfolio.

These facilities have significant covenant headroom. For example, a further fall of 10 per cent in capital values would create a covenant shortfall of only £1 million.

The table below shows the covenant shortfalls on our non-recourse debt that could be remedied from our available facilities for further falls in capital values:

David Fischel

Chief Executive

2019 Strategy

Winning destinations strategy

Our strategy is to focus on winning destinations delivering resilient income streams, investing where there is the greatest potential, and reducing our debt to assets ratio to below 50 per cent through disposals, part-disposals and introducing partners to assets. In recent years we have successfully recycled capital through this approach, disposing of over £1 billion of assets.

The retail environment remains challenging. Our response is to adapt our strategy, protecting shareholder value in the short term and maximising growth in the medium term as we progress the repositioning process.

Our strategy will ensure that we focus on the centres with the greatest potential, with a capital structure that enables us to make the required investment.

Optimal positioning in a fast-moving environment

We operate in a fast-moving retail and leisure environment and to ensure we are optimally positioned we will:

- refine the portfolio to concentrate on regional destinations, making high-impact investments to ensure they remain winning locations where customers love to come often and are great locations for retailers where it is easy for them to do business

- leverage the brand, aided by the delivery of world class service, compelling experiences and innovative digital initiatives

- deliver a compelling value proposition for our tenants, ensuring their locations in our centres are among their top quintilein the UK

- actively pursuing complementary non-retail development alternatives to maximise the potential from our significant land holdings around our centres which offer many opportunities for alternative uses, including residential and hotels

A capital structure to meet our needs

To deliver this transformation, we will create a capital structure to meet our needs, refinancing debt both as required and where attractive for the Group to do so, targeting a reduction in our debt to assets ratio to below 50 per cent over time. This will be delivered by:

- significantly reducing the dividend paid and disposing of sundry assets

- the disposal and part-disposal of centres which do not meet our winning destination criteria over the medium term. We havethe flexibility to introduce partners into some of our flagship centres, with around two-thirds, by value, of our total assets100 per cent owned

Strategic objectives for 2019

Our three strategic objectives for 2019 are:

1. Delivering strong underlying individual centre performance

2. Adapting fast to a changing retail environment

3. Making smart use of capital

Operating Review

Valuation

Property values fell in the year driven by adverse conditions in the UK retail market and weakening sentiment in the retail property investment market as illustrated by the low levels of transactions. With valuers assuming that investors have increased their focus on current income, their valuations reflect a greater weighting in the overall opinion towards net initial yields.

The table above shows the main components of the £1,405.0 million property revaluation deficit:

- UK super-regional centres: performed stronger than other intu UK assets, recognising the continuing attraction of this asset class which remains key to retailers' requirements. These centres have reduced in value by 13 per cent in aggregate, with intu Braehead an outlier, down 20 per cent, as it continues to be impacted by the relatively weaker economic and uncertain political situation in Scotland

- UK major city centres: on average values have fallen by 16 per cent reflecting weaker investor demand for some of these centres. Within this category, those super-prime assets in the busiest city centres have performed better, with smaller reductions at the likes of Manchester Arndale, intu Eldon Square, Newcastle and intu Milton Keynes

- 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 year on intu Costa del Sol

- UK other including developments: predominantly 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 opportunities. This category also includes intu Watford (non like-for-like) and intu Chapelfield (31 December 2017 included at 100 per cent and 31 December 2018 included at 50 per cent)

The weighted average net initial yield (topped-up) at 31 December 2018 increased by 62 basis points in the year to 4.98 per cent.

On a like-for-like basis, ERV decreased by 3.9 per cent as valuers have in general taken a more conservative view on rental values for larger space units and on the overall rental values at intu Braehead, intu Victoria Centre and intu Potteries.

The MSCI UK monthly property index (retail) indicated a 5.7 per cent decrease in capital values and a 2.5 per cent decrease in market rentals. The divergence from intu's performance is considered most likely to represent a timing difference with intu's valuations.

In our view, once the near-term yield correction has taken place, income performance rather than changing yields is then likely to be, for a time, the main driver of valuations.

Growing like-for-like net rental income

Like-for-like net rental income growth is our key income measure. In the year, we grew like-for-like net rental income by 0.6 per cent, similar to the increase of 0.5 per cent in 2017. The key components of the growth are shown in the table below:

Group like-for-like net rental income

1 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 1.3 per cent rental growth. Against previous passing rent, lettings were on average up 6 per cent and rent reviews up 7 per cent.

Vacancy increased marginally in 2018, resulting in a 0.1 per cent impact on net rental income.

The effect of administrations and CVAs was 1.9 per cent. This movement has been minimal given 6 per cent of our rent roll could have been impacted by administrations and CVAs in 2018 (see market trends) and illustrates the strength of our stores in the retailers' portfolios.

Other delivered 1.1 per cent growth from non-recurring items, including a higher level of premiums received in 2018 against the prior year.

Like-for-like net rental income operating metrics

Occupancy is 96.7 per cent, in line with 31 December 2017, with new lettings offsetting the closures in the year.

We agreed 248 long-term leases in the year, amounting to £39 million annual rent, at an average of 6 per cent above previous passing rent (like-for-like units) and in line with valuers' assumptions. On a net effective basis (net of rent free and incentives), rents were also 6 per cent ahead of previous rents.

Retailers continue to focus on increasing their space in prime, high-footfall retail destinations. While the UK letting market is challenging, our winning destinations continue to be in demand from quality retailers. Significant activity in 2018 included:

- new retail anchors, in the shape of key fashion brands, upsizing to optimise their offering and configuration. At intu Lakeside, River Island and Zara are both upsizing, doubling and trebling their space respectively, and Next opened new flagship stores of around 80,000 sq ft each at intu Metrocentre and intu Merry Hill

- key international fashion brands expanding their portfolio of brands with H&M opening two of its eight Monki stores in the UK at intu Eldon Square and Manchester Arndale and Inditex, the parent company of Zara, followed openings of Stradivarius and Pull&Bear at intu Trafford Centre last year with Bershka at St David's, Cardiff

- international brands' ongoing appreciation of the attraction of intu's destination shopping centres to gain nationwide exposure. Abercrombie & Fitch opened only its second UK store at intu Trafford Centre, Uniqlo is planning to open two of its first stores outside London at intu Watford and Manchester Arndale and Xiaomi, the Chinese mobile phone company, opened 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, including brands which historically would be department store concessions such as Jo Malone. Mitsubishi and Silent Night have opened stores at intu Lakeside and The White Company at Cribbs Causeway

We settled 137 rent reviews in the year for new rents totalling £47 million, an average uplift of 7 per cent on the previous rents.

The weighted average unexpired lease term is 7.2 years (31 December 2017: 7.5 years) illustrating the longevity of our income streams.

The difference between our annual property income of £474 million and ERV of £566 million represents £25 million from units subject to a rent free period, £41 million from vacant and development units and reversion of £26 million, 5 per cent, from rent reviews and lease expiry.

Delivering operational excellence

The objective of delivering 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 unusual weather events in 2018 with periods of severe snow followed by the high temperatures through the summer. Overall, our footfall decreased by 1.6 per cent in 2018, but significantly outperformed the ShopperTrak measure of UK national retail footfall which was down on average by 3.5 per cent, highlighting the continued attraction of our compelling destinations against the wider market.

Estimated retailer sales in our centres were down 2.3 per cent impacted by some larger space users who had a difficult 2018 and other retailers who operate successful multichannel models where 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 12.4 per cent.

Our net promoter score, a measure of customer service, improved in the year, averaging 75. It continues to demonstrate ourin-centre operational excellence.

Putting customers first is embedded in our culture and the intu brand. The brand has continued to gain momentum and positionsus 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, 28 per cent mentioned intu when asked to name a shopping centre brand and 76 per cent knew of the brand when prompted, both increasing against 2017.

intu Experiences, our in-house team delivering immersive brand partnerships, mall commercialisation and advertising, generated gross income of £23 million (2017: £22 million). The growth was driven by promotional activity which included Stylist Live's first consumer event outside London at intu Trafford Centre and increased demand from global brands such as Christian Dior and Calvin Klein using our high footfall centres to reach a wider audience.

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 four years, from 2015 to 2018, intu and our tenants have invested over £1 billion in our centres, with over £500 million coming from intu and a similar level coming from our tenants, predominantly introducing their latest shopfits.

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 2018

In 2018 we have invested £201 million in our centres on projects enhancing the value and appeal of these destinations. This includes:

- £67 million on completing the 380,000 sq ft intu Watford extension which opened in September 2018. Around 80 per cent of the space is now open or exchanged, with the latest signings including Uniqlo, Hollister and Hugo Boss. A further 15 per cent is in advanced negotiations and we anticipate 95 per cent of the space will be open and trading by spring 2019

- £40 million on the leisure extension at intu Lakeside. This scheme is 93 per cent pre-let with Market Halls, a new communal dining hall concept, the most recent signing. Nickelodeon, Puttshack, Hollywood Bowl and Flip Out are now fitting out ready to open in spring 2019

- £17 million on the transformation of Barton Square at intu Trafford Centre (see near-term pipeline)

- £77 million on many other active asset management initiatives, including the recently opened Atlantis aquarium and Nickelodeon at intu Xanadú and the Halle Place restaurant quarter at Manchester Arndale

In addition, 262 units opened or shopfitted in our centres in 2018 (2017: 259 stores), around 8 per cent of our 3,300 units. Tenants have invested around £144 million in these stores, a significant demonstration of their long-term commitment to our centres.

Annual maintenance expenditure in our centres is substantially recovered from tenants via the service charge. In 2018, a total of £17 million across our assets was recovered.

Near-term pipeline

Looking ahead, we are progressing our near-term investment pipeline of £428 million through to the end of 2021.

We are committed to investing £238 million:

- at intu Broadmarsh we appointed the main contractor for this mixed-use regeneration project which is anticipated to cost£89 million in total and expected to deliver a stabilised initial yield of around 7 per cent. We have signed The Light cinema and Hollywood Bowl, with 45 per cent of the project either exchanged or in advanced negotiations. The redevelopment is expected to complete in the second half of 2021

- at intu Trafford Centre, we have commenced construction of the expansion and transformation of Barton Square with 62 per cent of the space pre-let and a further 11 per cent in advanced negotiations. The £75 million project, expected to deliver a return of between 6 and 7 per cent, involves enclosing the courtyard, enhancing interiors, trading from an additional level and providing a fashion offer for the first time at Barton Square with Primark anchoring the development, which is expected to open in early 2020

- at intu Lakeside and intu Watford, we have the remaining costs to complete these projects

- at intu Costa del Sol, we have committed £12 million to complete the final designs and resolve any outstanding planning matters. We have started the tendering process for some of the key construction packages (see below for more details on the full project)

- active asset management projects total £40 million and include £12 million for enhancing the look and feel of intu Merry Hilland £8 million for a mall refresh at intu Lakeside to tie in with the opening of the leisure extension. Other projects are across all centres and 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 £190 million:

- at intu Costa del Sol, we expect to clear the final planning matters in 2019. With work on the final design ongoing, we are also targeting our required level of pre-lets in the next 12 months. This 255,000 sq m development is expected to cost around £670 million. Our business plan provides for the introduction of a joint venture partner at the start of construction and limits our outlay on the project to around £188 million which we expect to be mostly funded by borrowings specific to the project

- active asset management projects total £120 million and are for projects of varying sizes across all centres

Mixed-use opportunities

In addition to the pipeline above, we have significant opportunities within the portfolio for alternative uses of some of ouravailable land.

We have extensive available land. Our six major out-of-town centres comprise some 760 acres of land, of which less than 40 per cent has buildings, multistorey car parks or distribution roads upon it, leaving 470 acres of surface car parks and other potentially developable land. The city centre locations also offer opportunities for intensification of uses.

Mixed-use opportunities being evaluated include residential, hotels and other uses. Initial work has highlighted the potential for around 5,000 residential units and nearly 600 hotel rooms.

Initially, private-rented-sector residential opportunities to create a total of circa 1,700 units have been identified which, if fully developed, could in aggregate produce a yield of around 5 per cent on total development costs, excluding land, of around £240 million. The most advanced of these projects is at intu Lakeside, where we could deliver around 1,000 residential units.

In addition to the residential and hotel opportunities, further mixed-use opportunities relating to office, flexible working spaces, business lounge and service-oriented uses have been identified that could generate attractive incremental returns to our current rental income stream. Many of these options have a relatively low capital outlay, are quick to implement and take advantage of the current configuration of the centres.

All these opportunities, which are under active consideration, would create value directly but moreover would increase the overall attractiveness and catchment of the centres.

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.

Financial strength

We consider the structure of our borrowings, predominantly using flexible asset specific non-recourse arrangements (84 per centof overall debt), to be appropriate for our concentrated portfolio.

We have refinanced or entered new facilities of over £500 million in 2018 (see financial review) at competitive rates illustratingthat debt markets continue to be supportive of the highest quality retail property. We will continue to undertake debt refinancing activity on a timely basis or where it is attractive for the Group to do so.

Cash and available facilities at 31 December 2018 were £548 million and our debt to assets ratio was 53.1 per cent. As stated in our strategy, we are targeting to reduce this to below 50 per cent over time and ensure we maintain adequate financial headroom.

Our facilities have covenant headroom to deal with falls in valuations. By way of example, a 10 per cent fall in capital values, from the December 2018 valuations, would create a covenant shortfall of only £1 million which could be cured from available facilities.

We have minimal debt maturities before 2021, with a weighted average debt maturity of 5.8 years at 31 December 2018.

With more than £5 billion of debt refinanced over the last six 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 4.2 per cent. Our average cost of debt includes legacy debt on intu Trafford Centre (£0.7 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 3.5 per cent.

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.

In line with our strategy, in late 2018 we disposed of £23 million of sundry assets at 6 per cent above their December 2017 book values.

Our disposals in the last four years are 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, by value, of our portfolio is 100 per cent owned.

Market trends

We closely monitor market trends to enable us to respond to new opportunities and challenges and to ensure our centres are well-positioned both now and for the future.

Today's market

A cautious consumer

The continuing Brexit uncertainty is weighing heavily on consumer confidence. The GfK measure of consumer confidence has been subdued since the EU referendum and reduced further in the last few months of 2018. In particular, the measure of how consumers feel about the general economic situation over the next 12 months has slipped.

Against this, employment is at its highest level since 1971 and wage growth has outpaced inflation since February 2018. This has translated to growth in disposable income in 2018, an increase of 6 per cent according to the Asda disposable income tracker, giving a more positive outlook than in the last few years.

A challenging time for weaker retailers

Economic uncertainty and changes in what customers are spending their money on has impacted sales growth, with non-food retailer sales marginally down (0.3 per cent) on average in 2018 according to the British Retail Consortium (BRC).

Shopping behaviours are also changing. The trend of growth in online sales (BRC 2018: +1.7 per cent), offset by falling in-store sales (BRC 2018: -2.0 per cent) has continued, but it is clear the store still plays a vital role irrespective of how the product is bought.

Store profitability is under pressure from limited sales growth and increased costs from business rates, national living wage and distribution costs of online sales. The weakness in Sterling has also raised the cost of retailers' goods sold.

2018 has seen a higher level of administrations and CVAs than in recent years with over 2,500 stores affected according to the Centre for Retail Research. High profile closures and CVAs include Toys R Us, House of Fraser, New Look and HMV, adding to the negative retail sentiment.

A widening gap between the best and the rest

As we operate in many of the top UK retail destinations where retailers want to maintain their best stores, we have been relatively unaffected by the problems faced by the recent administrations and CVAs.

The administrations and CVAs in the year relate to around 6 per cent of our passing rent. The majority of these (72 per cent) have had minimal impact, with the retailer keeping their best performing stores in our portfolio open on the existing rent. Of the remainder, 9 per cent are trading on discounted rents, 14 per cent have closed and 5 per cent have been re-let.

Reduced demand from investors in shopping centres

The uncertainty of Brexit, the structural change in retail and higher than normal level of administrations and CVAs has significantly reduced demand for prime shopping centres in 2018. With this weakening sentiment, valuation yields have risen throughout the year.

For transactions completed in 2018, there has been a greater focus on the quality of income, with investors seeking a higher net initial yield to protect returns where capital growth is seen as harder to deliver.

More certainty in the course of 2019 over what Brexit means, and retailers addressing the structural changes in their sector, will enable investors to make better informed decisions.

The US is now emerging from similar issues

The US has also seen significant retailer failures, in particular the well-publicised weaker department stores, over the last 18 months with a clear differentiation between prime and failing malls. This, coupled with a stabilising multichannel model and online retailers such as Amazon taking more physical space, has increased investor confidence in the best centres.

With the UK typically running some two years behind the US in terms of market trends, we would expect to see similar patterns emerge as the prime malls take market share from weaker locations, which should reignite investor demand.

Tomorrow's demands

The shopping journey is changing, but stores are still critical

In our dynamic multichannel world, how people shop and what they want from a visit to a shopping centre is evolving rapidly.

There are now many routes for customers to take on their shopping journeys. They may see a retailer's store as a showroom to view and try a product or the retailer's online presence as a medium to consume product information - but both have an important part to play. A key driver for customers is convenience, whether that is smartphone access to a retailer whenever it suits them or physical access to a store's full range as part of a retail experience incorporating leisure as part of a day out.

So, a visit to a shopping centre must offer all the things our customer wants. While online sales continue to increase, GlobalData estimate that around 85 per cent of all transactions still touch a store. What is important to the customer is that their chosen shopping location has all the best stores offering a full range of their products.

Flexibility is key for changing customer visits

Additionally, as the proportion of consumer spend on leisure is increasing, customers want places to offer a more experiential day out, be it cafes, restaurants, cinemas or activities such as bowling, mini-golf, climbing or skiing.

Finally, shoppers are not all the same: different age groups and different demographics want different things, so ensuring the mix caters for all their requirements is a further important step.

Tenants focus on brand, perception and customer service

As the demands of their customers increase, retailers are looking to further integrate their online and in-store models, with the best retailers moving to seamless propositions for shoppers. Key to this is a detailed understanding of their customers and faultless customer service whatever the channel.

Managing their brands and the perceptions of them is also critical, whether it be the physical proposition or social media where the position of influencers becomes more important.

Similarly, for leisure operators who are now taking a higher proportion of a customer's disposable income, the challenges and opportunities are the same.

We are responding with an adapted strategy

A tenant-centric approach

Making customers smile and helping retailers flourish is key.

This is not a one-size-fits-all business. Different centres have different customer bases and we use our unique insight, assembled from extensive data, to help our retailers and deliver what our customers want.

As owners and curators of shopping centre space and the main landlord for many of the best retailers in the UK from Apple to Zara, we can ensure that our tenants are in the right space to maximise their ability to generate profits. We can guarantee them a level of quality from clean, secure and safe space with high footfall and long dwell times. By contrast, high streets have suffered where they are owned by multiple landlords or managed by budget-constrained local authorities.

Adapting fast in a changing retail environment

As the role of the store evolves, for example with the increase in click and collect, we can offer our tenants a configuration that works successfully for their business model, be it more back of house space for storage and distribution or direct access to car parks for delivery pick-ups.

We are seeing this in a new generation of upsized flagship stores in our centres from Next at intu Metrocentre and intu Merry Hill, Zara at intu Lakeside to Primark at intu Merry Hill and intu Trafford Centre. All this helps to ensure that when customers visit our centres they have access to all the brands they want offering their full ranges.

On top of this, around 600 of our 3,300 units offer catering and leisure and the demand continues to increase. For instance, atintu Watford we are bringing an evening economy to its affluent catchment and at the family-oriented intu Lakeside we are introducing the likes of Nickelodeon, Hollywood Bowl and Puttshack.

A focus on the best destinations

We remain focused on the best destinations, with a portfolio concentrated on the top centres in the UK and Spain which offerday-out destinations for customers and superior footfall for our tenants.

We continue to invest in the centres offering the maximum potential, including ongoing leisure projects at intu Lakeside andintu Xanadú. Additionally, we are progressing mixed-use opportunities from our significant land holdings around centres.

Ensuring our centres remain appealing to customers and retailers will mean that they should become more attractive to investors once the current negative sentiment abates.

Our top properties

1 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 as prepared in accordance with IFRS include single lines for the Group's total share of post-tax profit/loss and the net investment in joint ventures respectively.

Management reviews and monitors performance as well as determines 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/loss or net investment basis. The figures and commentary presented are consistent with our management approach as we believe this provides a more relevant and reliable analysis of the Group's performance to users. The other information section provides reconciliations of the income statement and balance sheet between the two bases.

Figures and commentary presented on a proportionately consolidated basis are alternative performance measures (APMs) (see glossary) as they are not defined in IFRS. In presenting APMs within these results, we have applied the 'European Securities and Markets Authority Guidelines on Alternative Performance Measures'.

The most significant APMs used to measure the Group's performance including the rationale for their use are summarised below. EPRA performance measures, which are industry standard APMs, are detailed in the EPRA section within other information.

Overview

We have recorded underlying earnings of £193.1 million in 2018, down from the £201.0 million recorded in 2017. This reflects the impact of disposals and developments in 2018 partially offset by a 0.6 per cent growth in like-for-like net rental income. Underlying earnings per share of 14.4 pence has reduced 0.6 pence in the year.

The deficit on property revaluations of £1,405.0 million in 2018 is the primary driver of the loss for the year attributable to owners of intu properties plc of £1,132.2 million, compared to a surplus on property revaluations of £47.3 million and a profit of £216.7 million in 2017. Further commentary on the deficit on property revaluations is provided in the operating review.

Our measure of NAV per share (diluted, adjusted) of 312 pence has decreased 99 pence during the year due to the deficit on property revaluations, which impact the movement by 102 pence.

In January 2018 we continued our programme of recycling capital, completing the 50 per cent sale of intu Chapelfield to a new joint venture partner, LaSalle Investment Management (acting on behalf of Greater Manchester Pension Fund and West Yorkshire Pension Fund), for initial net consideration of £148.0 million. In accordance with IFRS, following the completion date, intu Chapelfield is now presented as a joint venture in our financial statements.

We have refinanced or entered new facilities of over £500 million in 2018. Our interest cover ratio of 1.91x is slightly lower in the year (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 £193.1 million and 14.4 pence respectively in 2018 have decreased from £201.0 million and 15.0 pence respectively in 2017. The key movements of underlying earnings are shown in the chart below.

Net rental income decreased £9.5 million in 2018 to £450.5 million primarily due to the part disposal of intu Chapelfield in January 2018 and the acquisition and part disposal of intu Xanadú in 2017, partially offset by growth in like-for-like net rental income.

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Like-for-like net rental income increased by £2.3 million, 0.6 per cent in the year, driven by rent reviews and new lettings partially offset by administrations and CVAs (see operating review).

Administration expenses increased by £2.4 million during the year to £44.0 million, predominantly from increased corporate overheads and depreciation on IT capital projects.

Net underlying finance costs have decreased by £2.1 million during the year to £220.4 million, driven by our ongoing refinancing programme and interest capitalised on developments partially offset by new debt raised. We expect finance costs in 2019 to be approximately double the second half of 2018 figure.

As discussed in the overview, the 2018 loss attributable to owners of intu properties plc is £1,132.2 million, a decrease from the £216.7 million profit reported in 2017.

Our investment in joint ventures recorded a loss of £42.1 million in 2018, compared to a profit of £35.5 million in 2017, which is primarily a result of a deficit on property valuations of £72.4 million (2017: surplus of £15.9 million). This includes underlying earnings of £29.2 million, an increase of £10.9 million during the year due to intu Chapelfield becoming a joint venture in January 2018 and the full year impact in 2018 of intu Xanadú as a joint venture.

As detailed in the table below, our net rental income margin is stable at 87.7 per cent. Our ratio of total costs to income, as calculated in accordance with EPRA guidelines, remains low at 15.3 per cent (see other information section).

Balance sheet

The Group's net assets attributable to shareholders are £3,811.7 million, a decrease from £5,075.0 million at 31 December 2017, while net assets (diluted, adjusted) are £4,190.9 million, a decrease from £5,522.7 million at 31 December 2017.

http://www.rns-pdf.londonstockexchange.com/rns/5356Q_1-2019-2-19.pdf

NAV per share (diluted, adjusted) at 31 December 2018 has decreased 99 pence during the year to 312 pence; the key movements are shown in the chart above. This was driven principally by the deficit on property revaluations in the year of 102 pence. As noted previously, our measure of 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 be 308 pence.

Investment and development property has decreased by £1,062.4 million due to a deficit on revaluation of £1,405.0 million, partially offset by capital expenditure of £201.0 million during the year 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 £823.9 million at 31 December 2018 (31 December 2017: £735.5 million), which includesthe Group's share of net assets, on an equity accounted basis, of £487.9 million (31 December 2017: £452.6 million) and loans to joint ventures of £336.0 million (31 December 2017: £282.9 million). The 2018 movement broadly 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 partially offset by a deficit on property valuations of £72.4 million.

Investments in associates of £65.6 million represent our interests in India, which comprises 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 (£20.5 million). Prozone and Empire own and operate shopping centres in Coimbatore and Aurangabad.

Net external debt of £4,867.2 million has increased by £31.7 million, the main movements due to capital expenditure in the year partially offset by proceeds from the part disposal of intu Chapelfield. Cash including the Group's share of joint ventures is in line with 2017, reducing slightly by £3.9 million to £274.3 million and gross debt has increased by £27.8 million to £5,141.5 million.

Derivative financial instruments comprise the fair value of the Group's interest rate swaps (referred to as allocated and unallocated swaps). The net liability at 31 December 2018 is £284.0 million, a decrease of £65.8 million in the year, due to cash payments in the year and increases in interest rates, with the Sterling five-year and 10-year swap rates increasing by 24bps and 13bps respectively. Cash payments in 2018 totalled £44.9 million, £28.1 million of which has been classified as an exceptional finance cost as it relates to payments in respect of unallocated swaps (see below). The balance of the payments has been included as underlying finance costs as it relates to ongoing allocated swaps used to hedge debt.

We hold a number of interest rate swaps, entered into some years ago, which are unallocated due to a change in lenders' practice. Lenders previously would allow the allocation of existing long-dated swap cover to new debt; however, this practice changed where lenders began to require lender specific swaps on new debt to be put in place as a hedge when entering into new variable interest rate debt. As a consequence of our significant refinancing activity carried out in recent years (see financing section), this historical long-dated swap cover is no longer acting as a hedge to any debt interests and is therefore unallocated.

At 31 December 2018 these unallocated swaps have a market value liability of £184.4 million (31 December 2017: £235.4 million). It is estimated that we will be required to make cash payments on these unallocated swaps of around £26.7 million in 2019, reducing to below £20 million per annum in 2021. Cash payments on these unallocated swaps will continue until their maturity dates, which range between 2020 and 2037, but will cease in the event a swap is closed early. Management currently intends to hold these until maturity as there is currently no economic benefit to closing these unallocated swap contracts early as this would require an upfront cash settlement in full.

The non-controlling interest at 31 December 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 31 December 2018 the exposure is 15.0 per cent of net assets attributable to shareholders of the Group (31 December 2017: 10.6 per cent), with the increase from 31 December 2017 being primarily due to the declines in our UK property valuations during the year. Once the Eurofund expected future interest in the intu Costa del Sol development concludes, we expect the exposure to reduce to 13.9 per cent, after which the appropriate level of exposure will be assessed.

Cash flow

During 2018 cash and cash equivalents increased by £13.3 million.

Cash flows from operating activities of £102.6 million are £38.3 million lower than the same period in 2017, primarily due to the timing of payments.

Cash flows from investing activities reflects the cash outflows related to capital expenditure in 2018 offset by the cash inflow for the 50 per cent sale of intu Chapelfield in January and net cash inflows from joint ventures during the year.

The main elements of cash flows from financing activities are the cash dividends paid in 2018 of £187.6 million, partially offset by net borrowings drawn in the year.

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. In October 2018 we settled in cash the remaining £160.4 million outstanding in respect of the 2.5 per cent convertible bonds.

During the year 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

- agreed a new £46 million facility secured against our development at intu Broadmarsh, maturing in 2022. At 31 December 2018, this development finance loan was undrawn

- agreed a new £50 million facility secured against our development at intu Trafford Centre's Barton Square, maturing in 2021. This facility is split as a £25 million term loan, which was fully drawn at 31 December 2018 and a £25 million development finance loan, of which £3.3 million was drawn at 31 December 2018

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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 53.1 per cent since 31 December 2017 due to the deficit on property revaluation in the year. As part of our revised strategy, we will be looking to reduce this to below 50 per cent. Our weighted average debt maturity has reduced to 5.8 years and the weighted average cost of gross debt is stable at 4.2 per cent (excluding the RCF).

Interest cover of 1.91x 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 in the year to 84 per cent within our policy range of between75 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 10 per cent fall in capital values would create a covenant shortfall of only £1 million.

Capital commitments

We have an aggregate Board-approved commitment to capital projects of £238.0 million at 31 December 2018 (31 December 2017: £267.6 million). Of this, £191.2 million (31 December 2017: £158.6 million) is contractually committed.

In addition to the committed expenditure, we have an identified uncommitted pipeline of active asset 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 two of our joint ventures 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.

The Group looks to minimise the level of tax risk and at all times seeks 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. This is achieved through regularly carrying out risk reviews, seeking pre-clearance from taxing authorities in complex areas and actively engaging in discussions regarding proposed changes in the taxation system that might affect the Group.

We have updated 'intu's Approach to Tax' for 2018 which is published on the Group's website intugroup.co.uk and provides further information about the Group's tax strategy.

Despite being a REIT, we pay tax directly on non-SOCIMI overseas earnings, any UK non-property income, business rates and transaction taxes such as stamp duty land tax. In 2018 the total of such payments to tax authorities was £28.2 million(2017: £28.5 million), of which £25.4 million (2017: £26.0 million) was in the UK and £2.8 million (2017: £2.5 million) in Spain. We also collect VAT, employment taxes and withholding tax on dividends for HMRC and the Spanish tax authorities.

Dividends

The Directors are not recommending a final dividend for 2018. The total paid in respect of 2018 is 4.6 pence, a reduction of the 14.0 pence paid in respect of 2017.

A UK REIT is expected to pay dividends (PIDs) of at least 90 per cent of its taxable profits from its UK property rental business by the first anniversary of each accounting date. In view of the announced short term reduction of dividends it is expected that there will be an underpayment of the minimum PID, and so for the Group to incur UK corporation tax payable at 19 per cent. Any corporation tax payable would form part of underlying earnings and in 2019 we would expect this to be in the range of £15 million to £20 million. The Group intends to remain a UK REIT for the foreseeable future.

At 31 December 2018, the Company has distributable reserves of £604 million.

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 undertaken a robust assessment of the principal risks and uncertainties 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 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.

There was an increased risk profile in 2018, with increases in both property market sub-risks. Additionally, there have been some changes to existing principal risks. Acquisitions has been removed as the business has not engaged in acquisitions in the year and people has been added as sub-category within the operations risk. 

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 macroeconomic 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. intu's Brexit risk review, initially conducted in 2016, has been reviewed and updated during the year.

Statement of Directors' responsibilities in respect of the financial statements

The Group's annual report for the year ended 31 December 2018 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 and the financial statements in accordance with applicable law and regulation.

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 the financial statements, the Directors are required to:

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

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

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

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

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company 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.

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.

Directors' confirmations

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 Group and Company'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 Company 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 loss of the Company

(b) 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 loss of the Group

(c) 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 and Company, together with a description of the principal risks and uncertainties that it faces

Signed on behalf of the Board on 20 February 2019

David Fischel

Chief Executive

Matthew Roberts

Chief Financial Officer

Consolidated income statement

for the year ended 31 December 2018

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

Consolidated statement of comprehensive income

for the year ended 31 December 2018

Consolidated balance sheet

Consolidated statement of changes in equity

For the year ended 31 December 2018

Consolidated statement of cash flows

for the year ended 31 December 2018

Notes

1 Accounting convention and basis of preparation

The financial information presented does not constitute the Group's annual report and financial statements for either the year ended 31 December 2018 or the year ended 31 December 2017, but is derived from those financial statements. The Group's statutory financial statements for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's annual general meeting. The auditors' reports on both the 2017 and 2018 financial statements were not qualified or modified; did not draw attention to any matters by way of an emphasis of matter; and did not contain any statement under Section 498 of the Companies Act 2006.

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), interpretations issued by the International Financial Reporting Standards Interpretations Committee and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

These consolidated financial statements have been prepared under the historical cost convention as modified by investment and development property, derivative financial instruments and certain other assets and liabilities that have been measured at fair value. A summary of the significant accounting policies applied is set out in note 2 of the Group's annual report and financial statements.

These accounting policies are consistent with those applied in the last annual financial statements, as amended when relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year. Except as described below, these changes have not had an impact on the financial statements.

This is the Group's first set of annual financial statements where IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers have been applied. The impacts on the financial statements on adoption of these standards are set out below. Significant accounting policies in respect of these standards are provided in note 2 of the Group's annual report and financial statements.

IFRS 9 Financial Instruments - the standard applies to classification and measurement of financial assets and financial liabilities, impairment provisioning and hedge accounting. The most significant presentation changes to the Group on adoption are as follows:

- financial instruments designated as at fair value through profit or loss (e.g. convertible bonds) - changes in fair value related to own credit risk will now be recognised in other comprehensive income, as opposed to the income statement under the previous standard

- modifications to financial liabilities (e.g. borrowings) - a one off gain or loss will now be recognised in the income statement at the date of modification, as opposed to recognising the gain or loss over the modified term of the financial liability

- other investments - an irrevocable election has been made to recognise movements in other investments through other comprehensive income, consistent with the accounting treatment under the previous standard

On adoption, the Group has made an opening adjustment to retained earnings of £14.0 million, with the 2017 comparative period not restated. The adoption of the standard has not had any other material impact on the financial statements.

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 financial statements.

A number of standards and amendments to standards have been issued but are not yet effective for the current year. See note 1 of the Group's annual report and financial statements for further details.

Significant estimates and judgements

The preparation of 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. See note 1 of the Group's annual report and financial statements for details on significant judgements and estimates.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report of the Group's annual report and financial statements. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review. In addition, note 28 of the Group's annual report and financial statements includes the Group's risk management objectives, details of its financial instruments and hedging activities, its exposure to liquidity risk and details of its capital structure.

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

1 Accounting convention and basis of preparation

Going concern (continued)

In preparing the most recent projections, factors taken into account include £274.3 million of cash (including the Group's share of cash in joint ventures of £34.8 million) and £274.2 million of undrawn facilities at 31 December 2018. The Group's weighted average debt maturity of 5.8 years and the relatively long-term and stable nature of the cash flows receivable under tenant leases were also factored into the forecasts.

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

2 Segmental reporting

Operating segments are determined based on the strategic and operational management of the Group. The Group is primarily a shopping centre-focused business and has two reportable operating segments being the 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.

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

The Group's geographical analysis of non-current assets is presented below on a statutory basis. 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.

3 Loss on disposal of subsidiaries

The loss on disposal of subsidiaries of £8.5 million includes a loss in respect of the part disposal of intu Chapelfield to a joint venture of £9.0 million (see note 21) offset by an adjustment in respect of the part disposal of intu Xanadú in 2017 of £0.5 million. The 2017 loss of £1.8 million includes a loss in respect of the final net asset value adjustment of intu Bromley of £0.8 million as well as a loss in respect of the disposal of intu Xanadú to a joint venture of £1.0 million.

4 Administration expenses - exceptional

Exceptional administration expenses (see glossary for definition of exceptional items) in the year totalled £13.1 million (2017: £5.9 million) and relate principally to costs associated with the aborted offers for the Group made by Hammerson plc and the Consortium (comprised of the Peel Group, the Olayan Group and Brookfield Property Group). The 2017 costs related to the acquisition of intu Xanadú as well as costs associated with the aborted offer for the Group made by Hammerson plc. These costs have been classified as exceptional based on their incidence.

5 Net finance costs

1 Finance costs of £10.5 million were capitalised in the year ended 31 December 2018 (2017: £4.9 million).

2 Amounts totalling £32.9 million in the year ended 31 December 2018 (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 8(b)). 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 gain on derivative financial instruments are gains totalling £44.9 million (2017: £47.1 million) resulting from the payment of obligations under derivative financial instruments during the year. Of these £28.1 million related to unallocated swaps (2017: £26.1 million).

6 Taxation

Taxation for the year:

Tax relating to components of other comprehensive income of nil (2017: credit of £0.1 million) relates entirely to deferred tax in respect of other investments.

The tax (credit)/charge for 2018 and 2017 is lower than the standard rate of corporation tax in the UK. The differences are explained below:

Details of deferred tax balances are given in note 18.

Factors that may affect future current and total tax charges

The Group continued to operate as a UK REIT throughout the year, under which any profits and gains from the UK property investment business are exempt from corporation tax, provided certain conditions continue to be met. The Group fulfilled theseUK REIT conditions throughout the year. In view of the announced short-term reduction of dividends it is expected that there will be an underpayment of the minimum PID, and so for the Group to incur UK corporation tax payable at 19 per cent.

Certain of the Group's Spanish joint ventures have elected into the SOCIMI regime, and these continued to operate as and fulfil the relevant conditions of the SOCIMI regime throughout the year.

7 Dividends

The Directors are not recommending a final dividend for 2018. See financial review and note 6 for further information.

Details of the shares in issue and dividends waived are given in notes 19 and 20 respectively.

As a REIT, dividends are declared and paid in accordance with REIT legislation. See glossary for further information as well as the financial review for information on distributable reserves.

8 Earnings per share

(a) Number of shares

1 The weighted average number of shares used has been adjusted to remove shares held in the 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 as presented is based on EPRA earnings per share, an industry standard APM considered a key measure of recurring performance, but adjusted for certain items (listed below) which management believes are necessary in order to better present the Group's recurring performance and therefore provide an indication of the extent to which dividend payments are supported by underlying operations (see underlying profit statement in the other information section). Underlying earnings per share excludes property and derivative movements, exceptional items and related tax. The key differences to EPRA earnings per share relate to the following adjustments:

- with the exception of termination costs on allocated interest rate swaps and costs related to acquisitions, which are both excluded from EPRA earnings and underlying earnings, exceptional finance costs (as detailed in note 5) and exceptional administration expenses (as detailed in note 4) are included in EPRA earnings but are excluded from the Group's measure of underlying earnings. In accordance with the Group's definition for exceptional items (as detailed in the glossary), the Group considers these costs to be exceptional based on their nature and incidence, which create volatility in earnings

- fair value movements on interest rate swaps not currently used for economic hedges of debt (referred to as unallocated swaps) are included in EPRA earnings but are excluded from the Group's measure of underlying earnings. The Group does not hold unallocated swaps for speculative purposes. Management currently intends to hold these unallocated swaps until maturity, therefore the volatility created by their fair value movements will not crystallise

A reconciliation of underlying earnings to (loss)/profit for the year attributable to owners of intu properties plc as well as EPRA earnings is provided below. The EPRA section within the other information section provides additional details on EPRA and related measures provided.

1 2017 EPRA earnings per share has been adjusted to remove the fair value movements of unallocated interest rate swaps not related to cash payments on the respective swaps.

2 Includes the impact of payments on unallocated interest rate swaps and changes in fair value of unallocated interest rate swaps as detailed in note 5.

3 Diluted EPRA earnings for the year ended 31 December 2018 is 15.7p (2017: 12.8p).

(c) Headline earnings per share

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

1 Net of tax and non-controlling interests.

2 The dilution impact is required to be included as calculated in note 8(a/b) even where this is not dilutive for headline earnings per share.

9 NAV per share

(a) Number of shares

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

2 Diluted shares is used to calculate EPRA NAV per share and NAV per share (diluted, adjusted).

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

(b) NAV per share

NAV per share (diluted, adjusted) as presented is based on EPRA NAV per share, an industry standard APM considered a key measure of the Group's performance, but adjusted for certain items (listed below) which management believes are necessary in order to better present the Group's performance. The key differences to EPRA NAV per share relate to the following adjustments:

- fair value movements on interest rate swaps not currently used for economic hedges of debt (referred to as unallocated swaps) are included in EPRA NAV but excluded from the Group's measure of NAV (diluted, adjusted). The Group does not hold unallocated swaps for speculative purposes. Management currently intends to hold these unallocated swaps until maturity, therefore the volatility created by their fair value movements will not crystallise

- fair value movements on convertible bonds which are excluded from EPRA NAV but included in the Group's measure of NAV (diluted, adjusted). Management reviews and monitors the Group's debt to assets ratio based on the book value of debt and therefore management believes it is appropriate to include the book value of debt within the Group's measure of NAV (diluted, adjusted)

A reconciliation of NAV (diluted, adjusted) to NAV attributable to owners of intu properties plc as well as EPRA NAV is provided below. The EPRA section within the other information section provides additional details on EPRA and related measures provided.

(c) EPRA NNNAV per share

EPRA NNNAV per share has been included as it is considered to be an industry standard APM which seeks to assist comparison between European property companies.

10 Investment and development property

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

The market value of investment and development property at 31 December 2018 includes £7,718.7 million (31 December 2017: £8,831.9 million) in respect of investment property and £339.4 million (31 December 2017: £376.5 million) in respect of development property.

The fair value of the Group's investment and development property at 31 December 2018 was determined by independent external valuers at that date other than certain development land. The valuations are in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation - Global Standards 2017 and were arrived at by reference to market transactions for similar properties and rent profiles. Fair values for investment properties are calculated using the present value income approach.

In respect of development valuations, deductions are made for anticipated costs, including an allowance for developer's profit and any other assumptions before arriving at a valuation.

The valuation methodology is unchanged from the prior year and is set out in further detail in note 14 of the Group's annual report and financial statements. The table in the other information section sets out the market value, yield and occupancy of the significant investment and development property.

In respect of the intu Costa del Sol development site near Málaga, Spain, as the General Plan of Torremolinos was approved in December 2017, with the remaining consents expected in the coming months, the Group obtained an independent external valuation at 31 December 2017 as cost was no longer an appropriate approximation of fair value. At 31 December 2018 the remaining consents are yet to be finalised; however, we continue to expect these to be received. Therefore, consistent with the 31 December 2017 valuation, the 31 December 2018 valuation is based on the assumption that planning approval is in place at the valuation date.

11 Investment in joint ventures

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

At 31 December 2018, the boards of joint ventures had approved £5.0 million (2017: £13.8 million) of future expenditure for the purchase, construction, development and enhancement of investment property. Of this, £2.7 million (2017: £12.7 million) is contractually committed. These amounts represent the Group's share.

Set out below is the summarised information of the Group's joint ventures with financial information presented at 100 per cent. The 2018 summary information and the summarised income statement of intu Chapelfield is presented for the period from 1 February 2018, the date at which it ceased being a 100 per cent owned subsidiary of the Group.

The 2017 summary information and the summarised income statement of intu Xanadú is presented for the period from 31 July 2017, the date at which it ceased being a 100 per cent owned subsidiary of the Group.

12 Investment in associates

Investment in associates comprises a 32.4 per cent holding in the ordinary shares of Prozone Intu Properties Limited (Prozone), a listed Indian shopping centre developer, and a 26.8 per cent holding in the ordinary shares of Empire Mall Private Limited (Empire). Both companies are incorporated in India.

The equity method of accounting is applied to the Group's investments in Prozone and Empire in line with the requirements of IAS 28 Investments in Associates and Joint Ventures. The results for the year to 30 September have been used as 31 December information is not available in time for these financial statements. Those results are adjusted to be in line with the Group's accounting policies and include the most recent property valuations, determined at 30 September 2018, by independent professionally qualified external valuers in line with the valuation methodology described in note 10.

The market price per share of Prozone at 31 December 2018 was INR29 (31 December 2017: INR72), valuing the Group's interest at £16.4 million (31 December 2017: £41.1 million) compared to the carrying value of £45.1 million (31 December 2017: £45.1 million). As the share price of Prozone is lower than its carrying value, a review of the carrying value has been undertaken. The net assets of Prozone principally comprise investment property which is held at fair value within the investment in associates line. As with other Group investment property, it is subject to independent valuation to fair value and that valuation reflects the future cash flows expected to be generated from those assets. As such the net asset carrying value recorded in the financial statements is deemed to be a reasonable approximation of the value in use of the business and so no adjustment to that carrying value is considered necessary.

13 Trade and other receivables

Included within prepayments and accrued income for the Group of £193.5 million (2017: £180.9 million) are tenant lease incentives of £116.5 million (2017: £109.2 million), of which £17.2 million are classified as current (2017: £12.6 million) and £99.3 million as non-current (2017: £96.6 million).

14 Cash and cash equivalents