intu properties plc 2012 annual resultssgs initially used to refinance four of our prime, wholly...

2012 annual results Intu Properties plc

27 February 2013

2012 annual results

• Welcome – David Fischel

• Financial performance

– Matthew Roberts • Operational review

– Mike Butterworth • Strategy and outlook

– David Fischel

• Questions

• Appendices

Intu Properties plc

This presentation includes statements that are forward-looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Intu Properties plc to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Any information contained in this press release on the price at which shares or other securities in Intu Properties plc have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance

Welcome David Fischel, Chief Executive

Welcome

• Delivering our 2012 plans

– Out-performed in challenging market background

– Progressed active management and major extension projects

– Improved financial flexibility

– Launched nationwide consumer-facing brand and transformed digital proposition

• Acquisition

Financial performance Matthew Roberts, Finance Director

Key highlights

• Valuation up 0.6 per cent (IPD down 5.8 per cent)

• Underlying earnings 16.1p (2011 16.5p) - impact of tenant failures

• Final dividend 10p; full year dividend 15p

• NAV per share 392p; total financial return for the year 4.1 per cent

• £300m 6 year convertible bond

• Robust financial position: debt to assets ratio 49.5 per cent, 6.1 years average debt maturity and £563m of cash and committed facilities at year end

Underlying earnings

2012

£m

2011

£m Net rental income from continuing operations 362.6 364.0 Administration expenses (26.7) (24.1) Net finance cost (underlying) (204.0) (206.0) Dividend from US investment 6.3 8.3 Other (0.5) (3.6) Underlying earnings 137.7 138.6 Interest cover 1.69x 1.71x Underlying earnings per share (pence) 16.1 16.5 Average shares in issue (million) 853.8 840.9 Dividend per share (pence) 15.0 15.0

Net rental income Rental increases offset by tenant failures

2012

£m 12 months to December 2011 364.0 Like-for-like (-2.7%) (10.2) Trafford Centre 7.0 Additions 1.8 362.6

• £5m like-for-like increase created through letting activity, offset by £13m reduction from tenant administrations

• Ongoing impact in 2013 from tenants in administration, (66 units (4 per cent of rent) let to tenants in administration, of which 32 (3 per cent of rent) are still trading)

Underlying earnings “bridge”

Items excluded from underlying profit

2012

£m

2011

£m Continuing operations Property revaluations 40.9 63.0 Change in fair value of financial instruments 30.5 (193.4) Gain on sale of subsidiaries - 40.4 Gain on acquisition of subsidiaries 2.3 52.9 Exceptional finance costs (61.0) (47.8) Exceptional administration expenses (1.1) (20.9)

4.1% total financial return including dividend

Net assets per share 392 pence

Recurring operating cash flow

2012

Pence per share

Underlying operating cash generated 40.3 Net finance charges paid (22.4) Convertible bond interest (0.7) Net movement in working capital (0.5) Recurring cash flow 16.7 Dividend 15.0

• Recommending continuation of scrip dividend scheme

Net debt to assets 49.5%

Robust financial position

31 December 2012 31 December 2011

Total properties £7,073m £6,960m Net external debt £(3,504)m £(3,374)m Net debt to assets 49.5% 48.5% Cash £188m £91m Undrawn committed corporate facilities £375m £330m Net assets £3,006m £2,946m Adjusted net assets per share 392p 391p Weighted average cost of gross debt 5.2% 5.6% Weighted average maturity of gross debt 6.1 years 7.0 years

£130 million increase in net debt

Change in debt

• Currently 98 per cent hedged (excluding forward starting swaps)

New chart to come

Debt maturity as at 31 December 2012

• Weighted average debt maturity of 6.1 years

• Largely fixed, weighted average cost 5.2 per cent

• £375 million undrawn committed corporate facilities

• £563m of cash and committed facilities

• 2013-2017 Capex: £50m committed; £200m uncommitted (excludes major extensions)

New secured group structure announced today

Launch of refinancing

• New debt funding platform, a secured group structure (“SGS”)

– Enables ongoing access to medium and long dated bond markets alongside bank debt

– Diversifies sources of funding and lengthens maturities

• SGS initially used to refinance four of our prime, wholly owned shopping centres

– intu Lakeside, intu Braehead, intu Watford and intu Victoria Centre

– Portfolio valued at c £2.3bn

– SGS initially to raise c £1,150m, LTV c 50 per cent

– Refinancing and maturity extension on c 1/3 of Group’s debt and over 55 per cent of 2015-17 maturing debt

– Structured to issue debt capable of being assigned an ‘A’ category rating, ensuring ready access to bond markets

Increases flexibility and diversifies funding sources

New secured group structure

• Balances flexibility with lender/bondholder credit protections

– Operational flexibility to contribute or substitute assets, issue new debt and fund development capex

– Financial flexibility - able to access diverse range of debt products

• Tiered covenant regime

– Permits full operational flexibility at low leverage

– Increasing restrictions to protect lenders at high leverage (see appendix for further details)

• Initial c £1,150m debt raising

– Benchmark sterling bond offering, bank debt and bridge facility

– Bond roadshow from Monday 4 March

– Bridge facility refinanced through further capital market issuances as market conditions allow

• SGS is anticipated to lower the Group’s medium term average cost of funding; initial marginal increase due to funding accelerated swap payments

High quality, well known assets selected for SGS

SGS overview

• £36m of £1,306m existing debt held by Intu

• Break costs of existing swaps of £60-70m which will reduce adjusted, diluted NAV by c 7p

• c £200m contribution (funded by existing cash and facilities) to cover the swap break costs, transaction costs and refinancing the existing debt on the SGS assets

Benchmark Bond

SGS Bridge

Term Loan

Total c £1,150m

(LTV: c 50%)

Market Value

Existing Debt to be Refinanced Maturity

£1,093m £509m 2017

£582m £315m 2015

£324m £245m 2015

£307m £237m 2016

£2,306m £1,306m

(1) Excludes certain properties adjacent to intu Victoria Centre and intu Braehead that are valued as part of the centres for reporting purposes but are excluded from the SGS

(1)

(1)

Operational review Mike Butterworth, Chief Operating Officer

Key performance indicators remain robust

• Occupancy 96% (2011 – 97 per cent)

• Footfall -1% (CAGR 3 per cent previous three years)

• Retailer sales (est.) +1%

• 169 new long term leases £44m

• Like for like capital value +£41m (IPD index = minus 5.8 per cent) +0.6%

+7%

Driving superior operating performance • Progress lease renewal programme

• Protect/enhance values

• Improve tenant mix

• Address temporary lets

• Secure high quality shop fit • Strategic investment in

– our properties – our people – the future

• Key purchases

• Pursue consents

Bringing it all together

Architect visual – for illustration only

Braehead

• New flagship retailers

• Improved food and beverage offer

• “Town centre” - major planning application submitted

• “World Class Service”

• WiFi rollout July 2013

• Improved tenant mix

• Food Court expansion

• Major extension consented – to create a point of difference

Becoming a must-have location for retailers

Lakeside

Continuously improving the tenant mix

Trafford Centre

Enhancing the experience

Metrocentre

• New Platinum Mall

• Wider catering offer, for example MetrOasis

• Strategic acquisition of adjacent site

Other major projects

The Potteries, Stoke-on-Trent • consent received for leisure and catering

extension


Watford – Charter Place • larger format units • catering and leisure • overall 1.4m sq ft destination for Watford


Revitalising the estate to drive long term value

£1 billion investment pipeline over 10 years

Strategy and outlook David Fischel, Chief Executive

Opportunities in a changing marketplace

• Continuing benefit of focus on prime

• Footfall, dwell time and spend concentrating on top centres

• Food and beverage offer reinforcing destinations

• Technology as an enabler

• Opportunities for Intu to deliver more to customers

• Sector consolidation

Seizing the opportunity

• National consumer brand – visual changes

• Digitally connected – free WiFi – transactional website

• World class service – moments of surprise and delight

• Creative events and national marketing

Digital reshaping retail

74% of users would be happy to receive retailer messaging whilst in store

Video streaming

Always available 24/7

Accessing social media

68% of smartphone users use them instore

81.6m mobile handsets in the UK

44% of shoppers always check online before buying instore

Watch live news and sport

Seamless On-line / Off-line

There are 21m mobile internet users a month

12% of smartphone users have used QR codes

intu.co.uk

New brand

Intu Properties plc

Outlook

• Robust operating indicators and considerable momentum

• Factors impacting 2013 earnings

• Strategic objectives for 2013

- Optimise the performance of our existing assets, prioritising medium-term value creation - Continue to invest in the business, including pursuing our pipeline of development opportunities - Increase our financing flexibility to advance the business - Take forward our new brand, intu, and transformed digital proposition

• Opportunities for expansion, including through acquisition

Acquisition

• Midsummer Place, Central Milton Keynes

• c.420,000 sq ft modern, prime shopping centre

• Milton Keynes’ premier retail offer

• Cash consideration of £250.5 million before expenses

• 5.1 per cent NIY; 5.5 per cent NEY

• Net rents of £13.4 million

• Expected to be neutral to underlying earnings

• Weighted average unexpired lease term in excess of 6 years

• 91 per cent of income secured against national and international retailers

Acquisition – Midsummer Place Overview

• One of the UK’s strongest city economies in recent years

– High rate of business start ups

– Large pool of highly skilled residents and innovative companies

– High proportion of private sector employment

• Fastest growing UK city in terms of population

• Highest housing supply growth of all UK cities

• Milton Keynes is set to rise up the ranks of UK cities by size

Acquisition – Midsummer Place Milton Keynes - location, catchment and demographics

• Milton Keynes is conveniently located between London and Birmingham, Oxford and Cambridge

• Central Milton Keynes is a major regional shopping and leisure destination

• Affluent catchment population of 1.3 million living within a 45 minute drive time

– ‘Secure Families’ and ‘Wealthy Executives’ represent largest number of households in catchment area

– Proportion of households owning two or more cars and percentage of owner-occupied households higher than national average

• Opportunity to acquire a 100 per cent freehold interest in an established prime shopping centre with an attractive retailer mix

– Debenhams, H&M, Topshop, Hollister, GAP, Zara, Superdry and Apple

• Strong operating metrics – annual footfall in excess of 17 million and current vacancy of 3 per cent

• Scope for rental growth through asset management initiatives and tenant mix strategy orientated towards young fashion and aspirational brands

– Many stores understood to be strong performers and current rental levels are moderate

• Milton Keynes is a major city, in one of the UK’s strongest regions, with an affluent and growing catchment population

• Consistent with Intu’s strategy of owning and operating some of the very best shopping centres, in the strongest locations right across the country

• Addresses a regional gap in Intu’s UK coverage enabling it to strengthen its national offering to retailers (currently two thirds of the UK population live within a 45 minute drive time of an Intu centre)

Acquisition – Midsummer Place Investment rationale

• 50 modern retail units on a single-level mall

• Built and finished to a high specification with large retail units

• High standard of shop fits generating an attractive retailing environment

• Anchored by Debenhams (135,500 sq ft) and H&M (25,000 sq ft) and benefits from linkage with the centre:mk via the Boulevard

• Benefits from an adjoining car park, providing approximately 750 spaces of the 20,000 overall in Central Milton Keynes

• Asset management initiatives include:

– Deliver key retailer additions

– Improve catering offer to increase dwell times

– “Right sizing” certain retailers’ shops to create flagship stores

– Strategic lettings and renewals to reduce differential in rental tone between West Walk and East Walk (currently lower)

– Reposition the Boulevard – currently underutilised

Acquisition – Midsummer Place Plan of the centre

• The centre:mk – Opened in 1979, last

refurbished in 2009 – 1.25 million sq ft – Ranked 18th by PMA – Anchored by John Lewis,

House of Fraser and Marks & Spencer

– Combination of mass market, premium and restaurant operators

• Midsummer Place – Opened in 2000 – c 420,000 sq ft – Linked directly into the

centre:mk through two interlinked malls

– More aspirational tenant mix orientated towards young fashion

• Retail offer largely consists of the two adjoining shopping centres, Midsummer Place and the centre:mk, with a limited retail offer at Xscape

Retailing in Central Milton Keynes

Acquisition – Midsummer Place

Large units, meeting modern retailer requirements

Acquisition – Midsummer Place

An estimated half of the UK population visited an Intu shopping centre in 2012

Appendices

UK’s top ranked shopping centres

Centre Location Centre Location

1 Westfield London London – Shepherds Bush 21 Festival Place Basingstoke

2 Bluewater Greenhithe 22 Braehead Glasgow 3 Westfield Stratford City London - Stratford 23 The Glades Bromley 4 Meadowhall Sheffield 24 Silverburn Glasgow 5 Trafford Centre Manchester 25 Eldon Square Newcastle 6 Metrocentre Gateshead 26 Victoria Square Belfast

7 Lakeside Thurrock 27 Cabot Place, One Canada Square London 8 Liverpool One Liverpool 28 White Rose Shopping Centre Leeds 9 St David's Cardiff 29 Churchill Square Brighton

10 The Mall at Cribbs Causeway Bristol 30 Buchanan Galleries Glasgow

11 Bull Ring Birmingham 31 East Kilbride Shopping Centre Glasgow 12 Arndale Manchester 32 Chapelfield Norwich 13 Cabot Circus Bristol 33 Golden Square Warrington 14 Westfield Merry Hill Brierley Hill 34 The Oracle Reading 15 Westfield Derby Derby 35 Touchwood Solihull 16 Highcross Leicester Leicester

17 Brent Cross Shopping Centre London 38 Victoria Centre Nottingham 18 thecentre: mk Milton Keynes 49 The Potteries Stoke-on-Trent 19 The Harlequin Watford 74 The Chimes Uxbridge 20 West Quay Southampton 149 Broadmarsh Nottingham

Source: PMA * Top shopping centres on basis of PMA Retail Score (2012). Intu shopping centres highlighted

Valuation

Market value

£m

Like for like surplus (deficit)

%

Comment

Trafford Centre 1,800 +5.6 Positive recent lettings

Lakeside 1,093 +0.8

Metrocentre 878 +0.5

Braehead 601 +0.2

Cribbs Causeway 232 -0.3

Manchester Arndale 383 +1.4

The Harlequin, Watford 324 -1.3

Victoria Centre, Nottingham 308 -7.5 Flexible leasing approach ahead of capital investment

St David’s, Cardiff 276 -1.7

Eldon Square, Newcastle 251 -2.1

Chapelfield, Norwich 242 +1.8

The Chimes, Uxbridge 213 -0.3

The Potteries, Stoke-on-Trent 166 -9.6 Valuer’s assumption of risks associated with upcoming lease expiries

The Glades, Bromley 164 -6.0 Outward yield adjustment

Others 142 -5.7 Broadmarsh pending redevelopment

Total £7,073m +0.6%

Yield comparisons

• Prime UK shopping centres - attractive asset class for major international investors

• Wide spread relative to risk free rate and corporate bonds

£50m committed c £200m uncommitted excluding major extensions

Active management projects – anticipated expenditure

Chart from RY

• The above chart excludes the potential expenditure on major extensions of £800 million

Net rental income margin

Year ended

Year ended 31 December 2012 31 December

2011 Partners' Total share Intu share Intu share £m £m £m £m Gross rental income 442 (30) 412 403 Head rent payable (25) 25 - - 417 (5) 412 403 Net service charge expense and void rates (13) 1 (12) (9) Bad debt and lease incentive write off (10) 1 (9) (5) Property operating expenses (see below) (31) 3 (28) (25) (54) 5 (49) (39) Net rental income 363 - 363 364 Net rental income margin 88% 90%

• Slight reduction in margin due to higher costs, in particular those related to tenant administrations

• Property operating expenses include £10m of car park operating costs and £8m contribution to shopping centre marketing

Weighted average expiry 7.8 years

Lease expiry profile ~

* Excludes four per cent in respect of leases which have expired of which around two- thirds are in negotiation or solicitors hands

~Expressed as a % of rent roll

Marginal reduction in occupancy cost ratio

Retailer affordability

12 months ended 31 December

2012 30 June

2012 31 December

2011

Excluding anchor stores 12.4% 13.0% 13.2%

Excluding anchors and MSUs(1) 13.9% 14.4% 14.6%

As at

31 December 2012

31 December 2011

Anchors £11 £11

MSUs £30 £30

Standard units(4) £51 £51

Estimated occupancy cost trends(2)(5) Current rent per square foot(3)(4)

• Increased sales with steady rent

• Compares rent to retailer turnover(2)

(1) MSU: Major space user > 10,000 sq. ft. (2) Based on actual sales data for 63 per cent of sales, estimates for 37 per cent of sales, extent of data varies between centres. Excluding retail parks. (3) Based on net internal area – generally 10 per cent to 40 per cent higher than retail area. (4) Anchors and MSUs are generally let on a rent per square foot basis, standard shop unit rents are generally determined on a zoned basis. (5) Not comparable with continental Europe and US shopping centre statistics, differences include measurement of retail area (see (3) above ), treatment of property taxes

Aggregate ERV

Top 20 tenants

Rank Tenant Group Number of units Secured rent %

1 Arcadia (1) 59 6% 2 Next 22 3% 3 Boots 24 3% 4 H&M 15 2% 5 Debenhams 9 2% 6 JD Sports (2) 34 2% 7 Sportsdirect (3) 21 2% 8 New Look 12 2% 9 Monsoon 26 2% 10 Dixons Retail 12 1% 11 Primark 7 1% 12 River Island 14 1% 13 A S Watson (4) 31 1% 14 Signet Group (5) 32 1% 15 W H Smith 13 1% 16 Clinton’s 21 1% 17 Republic (7) 14 1% 18 House of Fraser 4 1% 19 Aurora (6) 26 1% 20 HMV (7) 12 1% Top 20 tenants total 408 35% (1) Includes BHS, Topshop, Topman, Burtons, Dorothy Perkins, Miss Selfridge, Wallis and Evans

(2) Includes Bank, Blacks, Cecil Gee and Scotts

(3) Includes USC

(4) Includes Superdrug and The Perfume Shop

(5) Includes H Samuel and Ernest Jones

(6) Includes Oasis, Warehouse and Coast

(7) HMV entered administration in January 2013, Republic in February 2013. At 22 February 2013 25 units (2 per cent of secured rent) were being traded by the administrator.

Corporate responsibility highlights

• Reduced absolute carbon emissions by 9 per cent in 2012 – like for like 22 per cent aggregate reduction over five years

• Eleven centres now send no waste to landfill • One of only 38 companies to hold BitC Community Mark

• Included in FTSE4Good, Dow Jones Sustainability Index and JSE SRI

• We are ranked by GRESB as a ‘Green Star’ for 2012

• Continued active involvement in community projects in 2012

EPRA non-GAAP measures Net asset value (diluted, adjusted)

Site location

• EPRA NNNAV is arrived at by adjusting NAV by the fair value of financial instruments (-54p), deferred tax (-1p), non-controlling interest in respect of financial instruments (-1p) and the difference between the fair value and book value of debt (+0p)

• EPRA vacancy rate The vacancy rate at 31 December 2012 was 2 per cent (31 December 2011: 2 per cent)

Net assets

£m NAV per share

(pence)

Reported net assets, basic net assets per share 2,977 347 Dilutive convertible bonds and share options/awards - (15)

Diluted NAV 2,977 332

Adjustments:

Financial instrument-related valuation adjustments 482 54

Deferred tax 9 1

Non-controlling interest 47 5

NAV (diluted, adjusted) 3,515 392 EPRA NNNAV (diluted, adjusted) 3,017 336

Proportionally consolidated income statement and balance sheet

Attributable to

partner

Group as reported

100% £m

Metro Centre Partnership

40% £m

Group Proportionally Consolidated

£m

Net rental income 363 (19) 344

Other income 6 - 6

Administration expenses (27) 1 (26)

Underlying net finance costs (204) 24 (180)

Valuation and exceptional items 16 (9) 7

Taxation 5 - 5

Net profit for the period 159 (3) 156

Attributable

to partner

Group as reported

100% £m

Metro Centre Partnership

40% £m

Group Proportionally Consolidated

£m

Investment property 7,010 (345) 6,665

Net external debt (3,504) 209 (3,295)

Derivative financial instruments (493) 23 (470)

Other net liabilities (7) 84 77

Net assets 3,006 (29) 2,977

Summarised income statement Summarised balance sheet

Tiered covenant regime

Key features of SGS

Tier Structure Key Covenants

Tier LTV ICR Testing

Tier 1 Up to 55% At least 1.60x Semi-annually

- Base case, with ratios consistent with day 1 leverage and cash flow performance

- Broad operational and financial flexibility - Certain covenants apply in all tiers

Tier 2 56% - 72.5% At least 1.40x Semi-annually - Interim tier, with some reduced flexibility

Tier 3 72.6% - 80% At least 1.25x Quarterly

- Represents the final tier before default - Substantial operating and financial restrictions

- Property adviser appointed to run the SGS on behalf of creditors

• The SGS will operate a tiered covenant regime which permits flexibility at low leverage and becomes more like a static secured structure at high leverage

intu properties plc 2012 annual resultssgs initially used to refinance four of our prime, wholly...

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