1 Basis of preparation

The condensed consolidated set of interim financial statements (interim financial statements) for the six months ended 30 June 2019 are unaudited and do not constitute statutory financial statements within the meaning of s434 of the Companies Act 2006. The interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 as adopted by the European Union.

The comparative information presented for the year ended 31 December 2018 is not the Group's financial statements for that year. Those financial statements have been reported on by the Group's auditor and delivered to the registrar of companies. The auditor's opinion on those financial statements was unqualified and did not contain an emphasis of matter paragraph or a statement made under Section 498 (2) or (3) of the Companies Act 2006.

The interim financial statements should be read in conjunction with the Group's annual report and financial statements for the year ended 31 December 2018 which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Significant estimates and judgements

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

In preparing the interim financial statements, with the exception of the significant judgements applied during the period as detailed below, the areas of significant judgement and the key sources of estimation uncertainty in applying the Group's accounting policies were consistent with those applied to the Group's financial statements as at and for the year ended 31 December 2018. See page 111 of the Group's 2018 annual report and financial statements for details on significant use of estimates and assumptions as well as significant areas of judgement.

During the period, management applied significant judgement to the following area:

- accounting for the part disposal of intu Derby at period end - management applied significant judgement to determine that the part disposal of intu Derby should be accounted for as an equity arrangement as opposed to a financing arrangement following completion. Following this, management applied significant judgement to determine that the part disposal of intu Derby should be classified as an asset held for sale. See further detail on judgements made in note 22

Going concern and future prospects

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.

Factors taken into account in making the going concern assessment include £189.7 million of unrestricted cash and £196.3 million of undrawn facilities at 30 June 2019. The Group's pro forma weighted-average debt maturity of 5.4 years and the relatively long-term and stable nature of the cash flows receivable under tenant leases were also factored into the forecasts.

The Group's liquidity position and available resources could be impacted by a reduced ability to refinance its borrowings in the same amount as currently secured on those assets should the reductions in the Group's property asset values continue. Within the going concern period, there are no material refinancing requirements. The pro forma debt maturity chart presented in the financial review section shows that there are no major refinancing requirements until early 2021, with a total of £926 million due to be refinanced throughout 2021. The Group is actively engaging with its lenders to mitigate any potential impact.

Various corporate transactions are also progressing in order to increase short-term liquidity (including the disposal of Spanish assets as noted in the financial review section) and to increase headroom. On 8 July 2019 the Group completed the part disposal of intu Derby, generating initial consideration of £108.7 million. As part of the transaction, the Group has arranged new senior debt financing of £150.0 million at the joint venture level secured on 100 per cent of the asset, which is fully drawn at 30 June 2019.

The Group has also considered covenant headroom through the going concern period on both loan to value and interest cover. For example, a 15 per cent fall in capital values from the June 2019 valuations, equivalent to a peak to trough fall of 33 per cent, would create a covenant shortfall of £83 million.

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

2 Accounting policies

The accounting policies and methods of computation applied are consistent with those of the Group's financial statements for the year ended 31 December 2018 as set out on pages 112 to 115 of the Group's 2018 annual report and financial statements, as amended when relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the period. Except as described below, these amendments have not had an impact on the interim financial statements.

This is the Group's first set of financial statements where IFRS 16 Leases has been applied. The standard requires lessees to recognise a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Revaluation of the right-of-use asset and finance costs on the lease liability will be recognised in the income statement. This standard does not affect the current accounting for rental income earned. On adoption, the Group has recognised a right-of-use asset and lease liability of £3.5 million. The Group has applied the modified retrospective approach and therefore has not re-assessed existing leases under the new standard.

A number of standards and amendments to standards have been issued but are not yet effective for the current period. These are not expected to have a material impact on the Group's financial statements.

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

 

3 Seasonality and cyclicality

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

 

4 Related party transactions

As John Whittaker, Deputy Chairman and Non-Executive Director of intu properties plc, is Chairman of the Peel Group, members of the Peel Group are considered to be related parties. During the period intu shareholders approved, at a General Meeting held on 31 May 2019, the sale to the Peel Group of a 30.96 acre site near intu Braehead known as King George V docks (West) and additional plots of adjacent ancillary land for cash consideration of £6.1 million.

During the period, the Group sold a wholly owned subsidiary, which holds a plot of sundry land near intu Xanadú, to the intu Xanadú joint venture for consideration of £8.6 million. Consideration includes cash consideration of £4.3 million and a retained interest in the entity through the intu Xanadú joint venture.

There have been no other related party transactions during the period that require disclosure under Section DTR 4.2.8 R of the Disclosure and Transparency Rules or under IAS 34 Interim Financial Reporting except those disclosed elsewhere in the interim financial statements.

 

5 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 set out in the presentation of information section, 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.

 

 

5 Segmental reporting (continued)

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:

	Six months ended 30 June 2019
	Group including share of joint ventures			Less share of joint ventures
£m	UK	Spain	Total		Group total
Rent receivable	231.0	16.5	247.5	(29.1)	218.4
Service charge income	61.8	3.8	65.6	(7.0)	58.6
Facilities management income from joint ventures	1.9	-	1.9	1.0	2.9
Revenue	294.7	20.3	315.0	(35.1)	279.9
Rent payable	(8.8)	-	(8.8)	0.5	(8.3)
Service charge costs	(69.5)	(4.0)	(73.5)	7.1	(66.4)
Facilities management costs recharged to joint ventures	(1.9)	-	(1.9)	(1.0)	(2.9)
Other non-recoverable costs	(23.5)	(2.1)	(25.6)	3.6	(22.0)
Net rental income	191.0	14.2	205.2	(24.9)	180.3
(Loss)/profit for the period	(831.7)	(31.3)	(863.0)	0.21	(862.8)

 

	Six months ended 30 June 2018
	Group including share of joint ventures			Less share of joint ventures
£m	UK	Spain	Total		Group total
Rent receivable	243.9	16.7	260.6	(29.8)	230.8
Service charge income	56.3	3.6	59.9	(7.0)	52.9
Facilities management income from joint ventures	1.6	-	1.6	0.8	2.4
Revenue	301.8	20.3	322.1	(36.0)	286.1
Rent payable	(7.2)	-	(7.2)	0.5	(6.7)
Service charge costs	(65.1)	(4.1)	(69.2)	8.0	(61.2)
Facilities management costs recharged to joint ventures	(1.6)	-	(1.6)	(0.8)	(2.4)
Other non-recoverable costs	(18.9)	(2.1)	(21.0)	2.7	(18.3)
Net rental income	209.0	14.1	223.1	(25.6)	197.5
(Loss)/profit for the period	(505.3)	2.3	(503.0)	(0.4)1	(503.4)

1    Relates to the profit/loss 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 is presented below:

	Investment and development property		Capital expenditure		Revaluation deficit
£m	At 30 June  2019	At 31 December  2018	Six months ended  30 June 2019	Six months ended  30 June 2018	Six months ended  30 June 2019	Six months ended  30 June 2018
UK	7,133.5	8,270.5	61.6	83.7	(841.1)	(648.4)
Spain	831.1	859.6	10.1	18.2	(31.0)	(2.0)
Group including share of joint ventures	7,964.6	9,130.1	71.7	101.9	(872.1)	(650.4)
Less share of joint ventures	(1,066.9)	(1,108.3)	(0.9)	(1.8)	44.2	33.0
Group	6,897.7	8,021.8	70.8	100.1	(827.9)	(617.4)

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. For investments this reflects where the investee is located.

£m	At 30 June  2019	At 31 December  2018
UK	7,236.4	8,381.8
Spain	569.2	599.6
India	66.1	66.0
	7,871.7	9,047.4

6 Administration expenses - exceptional

Exceptional administration expenses in the period of £1.9 million relate principally to costs incurred in respect of the revised strategy work undertaken by the Group. These costs have been classified as exceptional based on their incidence (see definition in the glossary).

 

7 Net finance costs

£m	Six months  ended 30 June  2019	Six months  ended 30 June  2018
On bank loans, overdrafts and allocated interest rate swaps	104.3	100.2
Less: finance costs capitalised to developments	(2.7)	(7.2)
On convertible bonds (note 17)	5.4	7.3
On lease liabilities	2.2	2.2
Amortisation of Metrocentre compound financial instrument1	2.9	2.9
Finance costs1	112.1	105.4
Finance income	(9.0)	(7.5)
Payments on unallocated interest rate swaps and other costs	21.0	15.2
Foreign currency movements	(0.1)	(0.3)
Other finance costs - exceptional1/2	20.9	14.9
Loss/(gain) on derivative financial instruments3	23.2	(42.7)
Loss/(gain) on convertible bonds designated as at fair value through profit or loss (note 17)	5.9	(32.6)
Change in fair value of financial instruments	29.1	(75.3)
Net finance costs	153.1	37.5

1    The underlying component of other finance costs (amortisation of Metrocentre compound financial instrument) has been re-presented within finance costs. As a result, other finance costs now only includes exceptional items. Following the change in presentation, for the six months ended 30 June 2018 finance costs have increased by £2.9 million, while other finance costs - exceptional have decreased by the same amount.

2    Exceptional finance costs are treated as exceptional items, as defined in the glossary, due to their nature and are therefore excluded from the Group's measure of underlying earnings (see note 10). These costs include payments on unallocated interest rate swaps, payments on termination of interest rate swaps, amounts associated with modifications and extinguishments of borrowings, foreign currency movements and other fees.

3    Included within the change in fair value of derivative financial instruments are gains totalling £19.1 million (six months ended 30 June 2018: £23.6 million) resulting from the payment of obligations under derivative financial instruments during the period. Of these £13.5 million relate to unallocated interest rate swaps (six months ended 30 June 2018: £14.1 million).

 

8 Taxation

Taxation for the period:

£m	Six months  ended 30 June  2019	Six months  ended 30 June  2018
Current tax:
Overseas taxation - ongoing	0.1	0.2
UK taxation - ongoing	8.3	-
Current tax - ongoing	8.4	0.2
Current tax - exceptional	7.9	-
Deferred tax:
On investment and development property	(10.0)	(3.2)
On other temporary differences	0.1	(0.1)
Deferred tax	(9.9)	(3.3)
Total tax expense/(credit)	6.4	(3.1)

Factors that may affect future current and total tax expense

Management uses judgement in assessing compliance with REIT legislation.

The Group believes it continued to operate as a UK REIT throughout the period, 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 believes that these UK REIT conditions have been fulfilled throughout the period.
 

8 Taxation (continued)

In view of the announced short-term reduction of dividends it is anticipated that there will be an underpayment of the minimum PID, and therefore under REIT legislation, the Group will incur UK corporation tax payable at 19 per cent whilst remaining a REIT.

The UK ongoing current tax expense in the period of £8.3 million relates to corporation tax on the estimated current period underpayment of the minimum PID. The figure has been calculated using management's estimate of the UK effective tax rate for the full year. This amount has been included within the Group's measure of underlying earnings as it relates to a tax expense on current year UK rental income.

The UK exceptional current tax expense in the period of £7.9 million represents in full the corporation tax in respect of the estimated prior year underpayment of the minimum PID. This one-off tax expense in respect of prior year has arisen from changes in the interpretation of the REIT legislation and has been classified as exceptional. This is excluded from the Group's measure of underlying earnings.

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 period.

Movements in the provision for deferred tax:

£m			Investment and development property	Other temporary differences	Total
Provided deferred tax provision/(asset):
At 1 January 2019			19.2	(1.2)	18.0
Recognised in the income statement			(10.0)	0.1	(9.9)
Foreign exchange movements			(0.2)	-	(0.2)
At 30 June 2019			9.0	(1.1)	7.9

The net deferred tax provision of £7.9 million predominantly arises in respect of the revaluation of development property at intu Costa del Sol, partially offset by associated tax losses.

At 30 June 2019, the Group had unrecognised deferred tax assets calculated at a tax rate of 17 per cent (31 December 2018: 17 per cent) of £54.6 million (31 December 2018: £51.1 million) for surplus UK revenue tax losses carried forward, £32.5 million (31 December 2018: £31.4 million) for temporary differences on derivative financial instruments, £0.5 million (31 December 2018: £0.5 million) for temporary differences on capital allowances, £1.6 million (31 December 2018: £1.2 million) for other investments and £5.9 million (31 December 2018: £5.8 million) for capital losses.

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

 

9 Dividends

£m	Six months  ended 30 June  2019	Six months ended 30 June  2018	Year ended  31 December  2018
Ordinary shares:
2017 final dividend paid of 9.4 pence per share	-	126.3	126.3
2018 interim dividend paid of 4.6 pence per share	-	-	61.8
Dividends paid	-	126.3	188.1

The Directors are not recommending payment of an interim dividend for 2019.

As a REIT, dividends are declared and paid in accordance with REIT legislation. See financial review section and note 8 for further information.

 

 

10 EPS

(a) Number of shares

Shares (millions)	Six months  ended 30 June  2019	Six months  ended 30 June  2018
Basic1	1,344.3	1,343.6
Diluted2	1,344.3	1,345.9

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

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

(b) EPS

Basic and diluted EPS is calculated in accordance with IAS 33 Earnings Per Share.

The Group's measure of underlying earnings (used to calculate underlying EPS) and the industry standard comparable measure of EPRA earnings (used to calculate EPRA EPS) are both APMs. The presentation of information section provides details on the key differences between underlying earnings and EPRA earnings as well as the rationale for using the APMs. The EPRA section provides additional details on EPRA and related measures provided.

	Six months ended 30 June 2019			Six months ended 30 June 20181
£m	IFRS  loss	EPRA  earnings	Underlying  earnings	IFRS loss	EPRA  earnings	Underlying  earnings
Loss attributable to owners of intu properties plc	(829.6)	(829.6)	(829.6)	(486.2)	(486.2)	(486.2)
Adjusted for:
Revaluation of investment and development property (note 12)	n/a	827.9	827.9	n/a	617.4	617.4
(Gain)/loss on disposal of subsidiaries	n/a	(0.1)	(0.1)	n/a	8.3	8.3
Gain on sale of investment and development property	n/a	(0.2)	(0.2)	n/a	-	-
Administration expenses - exceptional2	n/a	-	1.9	n/a	6.1	6.3
Other finance costs - exceptional2	n/a	-	20.9	n/a	-	14.9
Change in fair value of financial instruments3	n/a	29.9	29.1	n/a	(49.3)	(75.3)
Tax on the above4	n/a	(9.9)	(2.0)	n/a	(3.2)	(3.3)
Share of joint ventures' adjusted items	n/a	48.3	48.8	n/a	36.7	30.4
Share of associates' adjusted items	n/a	0.6	0.7	n/a	0.9	0.9
Non-controlling interests in respect of the above	n/a	(31.0)	(31.0)	n/a	(14.9)	(14.9)
(Loss)/profit used in per share calculation (basic)	(829.6)	35.9	66.4	(486.2)	115.8	98.5
Dilutive convertible bonds, share options and share awards	-	-	-	-	-	-
(Loss)/profit used in per share calculation (diluted)	(829.6)	35.9	66.4	(486.2)	115.8	98.5
	IFRS	EPRA EPS	Underlying EPS	IFRS	EPRA  EPS	Underlying  EPS
Basic (pence per share)	(61.7)p	2.7p	4.9p	(36.2)p	8.6p	7.3p
Diluted (pence per share)	(61.7)p	2.7p	4.9p	(36.1)p	8.6p	7.3p

1    EPRA earnings for the six months ended 30 June 2018 has been adjusted to now include the fair value movements of unallocated interest rate swaps not related to cash payments on the respective swaps.

2    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 7) and exceptional administration expenses (as detailed in note 6) are included in EPRA earnings but are excluded from the Group's measure of underlying earnings.

3    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.

4    The tax expense in respect of the prior year minimum PID shortfall has been classified as exceptional and therefore excluded from the Group's measure of underlying earnings (see further details in note 8) but has been included within EPRA earnings.

 

 

10 EPS (continued)

(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.

	Six months ended 30 June 2019		Six months ended 30 June 2018
£m	Gross	Net1	Gross	Net1
Basic loss		(829.6)		(486.2)
Adjusted for:
Revaluation of investment and development property (note 12)	827.9	787.0	617.4	599.3
(Gain)/loss on disposal of subsidiaries	(0.1)	(0.1)	8.3	8.3
Gain on sale of investment and development property	(0.2)	(0.2)	-	-
Share of joint ventures' adjusted items	44.0	45.3	33.0	35.0
Share of associates' adjusted items	0.6	0.6	0.9	0.9
Headline earnings		3.0		157.3
Dilution2		-		-
Diluted headline earnings		3.0		157.3
Weighted average number of shares (million)		1,344.3		1,343.6
Dilution2		-		2.3
Diluted weighted average number of shares (million)		1,344.3		1,345.9
Headline earnings per share (pence)		0.2p		11.7p
Diluted headline earnings per share (pence)		0.2p		11.7p

1    Net of tax and non-controlling interests.

2    The dilution impact is required to be included as calculated in note 10(a/b) even where this is not dilutive for headline earnings per share.

 

 

11 NAV per share

(a) Number of shares

Shares (millions)	Six months  ended 30 June  2019	Year ended  31 December 2018
Basic1	1,344.7	1,343.8
Diluted2/3	1,346.2	1,345.6

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

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

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

(b) NAV per share

The Group's measure of NAV (diluted, adjusted) (used to calculate NAV per share (diluted, adjusted)) and the industry standard comparable measure of EPRA NAV (used to calculate EPRA NAV per share) are both APMs. The presentation of information section provides details on the key differences between NAV (diluted, adjusted) and EPRA NAV as well as the rationale for using the APMs. The EPRA section provides additional details on EPRA and related measures provided.

EPRA NNNAV (used to calculate EPRA NNNAV per share), also an industry standard comparable measure, is presented to provide stakeholders with the most relevant information on the current fair value of the Group's net assets.

		At 30 June 2019				At 31 December 2018
£m	IFRS net assets	NAV (diluted, adjusted)	EPRA  NAV	EPRA NNNAV	IFRS net assets	NAV (diluted, adjusted)	EPRA  NAV	EPRA NNNAV
Net assets attributable to owners of intu properties plc	2,999.2	2,999.2	2,999.2	2,999.2	3,811.7	3,811.7	3,811.7	3,811.7
Adjusted for:
Fair value of derivative financial instruments (net of tax)1	n/a	303.4	119.8	-	n/a	280.5	96.8	-
Fair value of convertible bonds2	n/a	-	(72.8)	-	n/a	-	(60.1)	-
Excess of fair value of debt over book value	n/a	-	-	(200.0)	n/a	-	-	(206.7)
Deferred tax on investment and development property	n/a	7.9	7.9	-	n/a	18.0	18.0	-
Share of joint ventures' adjusted items	n/a	13.5	13.5	(42.6)	n/a	9.4	9.4	(42.6)
Non-controlling interest included in the above amounts	n/a	-	-	5.2	n/a	-	-	7.0
Non-controlling interest recoverable balance not recognised	n/a	71.3	71.3	71.3	n/a	71.3	71.3	71.3
Net assets used in per share calculation (basic)	2,999.2	3,395.3	3,138.9	2,833.1	3,811.7	4,190.9	3,947.1	3,640.7
Dilutive convertible bonds, share options and share awards	-	-	-	-	-	-	-	-
Net assets used in per share calculation (diluted)	2,999.2	3,395.3	3,138.9	2,833.1	3,811.7	4,190.9	3,947.1	3,640.7
	IFRS NAV  per share	NAV  per share (diluted, adjusted)	EPRA  NAV  per share	EPRA NNNAV  per share	IFRS NAV  per share	NAV  per share (diluted, adjusted)	EPRA  NAV  per share	EPRA NNNAV  per share
Basic (pence per share)	223p	n/a	n/a	n/a	284p	n/a	n/a	n/a
Diluted (pence per share)	223p	252p	233p	210p	283p	312p	293p	271p

1    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).

2    Fair value movements on convertible bonds are excluded from EPRA NAV but included in the Group's measure of NAV (diluted, adjusted).

 

 

12 Investment and development property

£m	Investment property	Development property	Total
At 1 January 2019	7,686.3	335.5	8,021.8
Additions	57.3	13.5	70.8
Disposals	(7.6)	-	(7.6)
Disposal of development property to joint venture	-	(8.1)	(8.1)
Transfer	66.5	(66.5)	-
Transfer of intu Derby to assets classified as held for sale (note 22)	(349.9)	-	(349.9)
Deficit on revaluation	(794.0)	(33.9)	(827.9)
Foreign exchange movements	-	(1.4)	(1.4)
At 30 June 2019	6,658.6	239.1	6,897.7

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

£m	At 30 June  2019	At 31 December  2018
Balance sheet carrying value of investment and development property	6,897.7	8,021.8
Tenant incentives included within trade and other receivables	119.5	116.5
Head leases included within lease liabilities in borrowings	(80.2)	(80.2)
Market value of investment and development property	6,937.0	8,058.1

The market value of investment and development property at 30 June 2019 includes £6,697.4 million (31 December 2018: £7,718.7 million) in respect of investment property and £239.6 million (31 December 2018: £339.4 million) in respect of development property.

Investment and development property is measured at fair value in the Group's balance sheet and categorised as Level 3 in the fair value hierarchy (see note 19 for definition) as one or more significant inputs to the valuation are partly based on unobservable market data.

The fair value of the Group's investment and development property at 30 June 2019 was determined by independent external valuers at that date other than certain development land not valued externally and held at cost as detailed below. 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.

Certain development land not valued externally and held at cost amounted to £15.1 million at 30 June 2019 (31 December 2018: £23.2 million). These amounts have been reviewed internally and it has been concluded that the cost is the appropriate carrying value and so no valuation adjustment is needed. As the developments advance these will be valued by independent external valuers.

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 30 June 2019 the remaining consents are yet to be finalised; however, the Group is expecting full planning to become effective in the second half of 2019. Therefore, consistent with the 31 December 2017 valuation and subsequent periods, the 30 June 2019 valuation is based on the assumption that planning approval is in place at the valuation date.

The valuation methodology is unchanged from the prior year and is set out in further detail on pages 125 and 126 of the Group's 2018 annual report and financial statements. The investment and development property section includes details on market value, occupancy as well as the assumptions used in the valuation of the core portfolio and key unobservable inputs of the significant investment and development property.

 

 

13 Investment in joint ventures

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

£m	St David's, Cardiff	intu Puerto Venecia	intu Xanadú	intu  Chapelfield	intu Asturias	Other	Total
Group's interest	50%	50%	50%	50%	50%
Principal place of business	Wales	Spain	Spain	England	Spain
At 1 January 2019	296.4	145.7	125.3	134.7	91.2	30.6	823.9
Group's share of underlying profit	5.8	1.2	2.6	2.4	0.3	0.4	12.7
Group's share of other net (loss)/profit	(27.7)	(4.9)	2.0	(12.7)	(1.9)	(3.6)	(48.8)
Group's share of (loss)/profit	(21.9)	(3.7)	4.6	(10.3)	(1.6)	(3.2)	(36.1)
Investment of capital	-	-	6.4	-	-	-	6.4
Repayments of capital	-	-	(3.3)	-	-	-	(3.3)
Distributions	-	-	-	(1.1)	-	(0.4)	(1.5)
Loan advances	-	-	-	-	-	1.4	1.4
Loan repayments	(9.0)	-	-	-	(3.3)	-	(12.3)
Foreign exchange movements	-	(0.6)	(0.2)	-	(0.4)	-	(1.2)
At 30 June 2019	265.5	141.4	132.8	123.3	85.9	28.4	777.3
Represented by:
Loans to joint ventures	60.6	98.0	58.2	74.0	22.7	11.0	324.5
Group's share of net assets	204.9	43.4	74.6	49.3	63.2	17.4	452.8

 

£m	St David's, Cardiff	intu Puerto Venecia	intu  Chapelfield	intu Xanadú	intu Asturias	Other	Total
Group's interest	50%	50%	50%	50%	50%
Principal place of business	Wales	Spain	England	Spain	Spain
At 1 January 2018	347.0	133.9	-	119.4	95.6	39.6	735.5
Acquisition of joint venture interest	-	-	151.9	-	-	-	151.9
Group's share of underlying profit	13.2	2.0	5.3	5.1	3.2	0.4	29.2
Group's share of other net (loss)/profit	(49.8)	9.8	(20.3)	(0.8)	0.5	(10.7)	(71.3)
Group's share of (loss)/profit	(36.6)	11.8	(15.0)	4.3	3.7	(10.3)	(42.1)
Investment of capital	-	-	-	7.7	-	-	7.7
Repayment of capital	-	-	-	(7.1)	-	-	(7.1)
Distributions	-	-	(2.2)	-	-	(0.7)	(2.9)
Loan advances	-	-	-	-	-	2.0	2.0
Loan repayments	(14.0)	(2.0)	-	-	(9.3)	-	(25.3)
Foreign exchange movements	-	2.0	-	1.0	1.2	-	4.2
At 31 December 2018	296.4	145.7	134.7	125.3	91.2	30.6	823.9
Represented by:
Loans to joint ventures	69.6	98.3	74.0	58.5	26.0	9.6	336.0
Group's share of net assets	226.8	47.4	60.7	66.8	65.2	21.0	487.9

 

 

 

13 Investment in joint ventures (continued)

£m	St David's, Cardiff	intu  Chapelfield	intu Puerto Venecia	intu Xanadú	intu Asturias	Other	Total
Group's interest	50%	50%	50%	50%	50%
Principal place of business	Wales	England	Spain	Spain	Spain
At 1 January 2018	347.0	-	133.9	119.4	95.6	39.6	735.5
Acquisition of joint venture interest	-	151.9	-	-	-	-	151.9
Group's share of underlying profit	6.7	2.4	0.7	2.8	1.4	0.2	14.2
Group's share of other net (loss)/profit	(25.2)	(8.1)	9.9	(0.5)	(0.6)	(5.9)	(30.4)
Group's share of (loss)/profit	(18.5)	(5.7)	10.6	2.3	0.8	(5.7)	(16.2)
Investment of capital	-	-	-	2.8	-	-	2.8
Repayments of capital	-	-	-	(5.3)	-	-	(5.3)
Distributions	-	-	-	-	-	(0.4)	(0.4)
Loan advances	-	-	-	-	-	0.6	0.6
Loan repayments	(10.5)	-	-	-	(5.7)	-	(16.2)
Foreign exchange movements	-	-	(0.3)	(0.3)	(0.6)	-	(1.2)
At 30 June 2018	318.0	146.2	144.2	118.9	90.1	34.1	851.5
Represented by:
Loans to joint ventures	73.1	74.0	98.8	57.5	28.9	8.1	340.4
Group's share of net assets	244.9	72.2	45.4	61.4	61.2	26.0	511.1

At 30 June 2019, the boards of joint ventures had approved £15.9 million of future expenditure for the purchase, construction, development and enhancement of investment property. Of this, £8.8 million is contractually committed. These amounts represent the Group's share.

 

14 Investment in associates

	£m
At 1 January 2019	65.6
Share of loss of associates	(0.1)
Foreign exchange movements	0.5
At 30 June 2019	66.0

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.

In accordance with IAS 28 Investments in Associates and Joint Ventures, the equity method is applied in accounting for the Group's investments in Prozone and Empire. The results for the year to 31 March have been used as 30 June 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 31 March 2019, by independent professionally qualified external valuers in line with the valuation methodology described in note 12.

The market price per share of Prozone at 30 June 2019 was INR22 (31 December 2018: INR29), valuing the Group's interest at £12.2 million (31 December 2018: £16.4 million) compared to the carrying value of £45.9 million (31 December 2018: £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 Group's 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.

 

 

15 Cash and cash equivalents

£m	At 30 June  2019	At 31 December  2018
Unrestricted cash	189.7	238.4
Restricted cash	211.1	1.1
Cash and cash equivalents	400.8	239.5

Restricted cash at 30 June 2019 includes £210.0 million for the part repayment of the SGS term loan. This repayment was made in full on 1 July 2019. See financial review section for additional details.

 

16 Borrowings

£m	At 30 June  2019	At 31 December  2018
Current
Commercial mortgage backed securities (CMBS) notes	27.7	46.7
Bank loan1	210.0	-
Current borrowings, excluding lease liabilities	237.7	46.7
Lease liabilities	5.0	4.4
	242.7	51.1
Non-current
Revolving credit facility 2021 (including £89.6 million drawn in euros (31 December 2018: £89.9 million))	460.6	393.9
CMBS notes 2022	28.3	33.4
CMBS notes 2024	88.5	88.3
CMBS notes 2029	64.6	67.5
CMBS notes 2033	288.5	296.3
CMBS notes 2035	196.2	195.1
Bank loan 2020	25.1	25.0
Bank loans 2021	473.5	668.7
Bank loans 2022	249.4	247.5
Bank loan 2023	73.2	73.1
Bank loan 2024	474.2	473.8
3.875% bonds 2023	445.2	444.6
4.125% bonds 2023	480.0	479.5
4.625% bonds 2028	343.2	342.9
4.250% bonds 2030	345.5	345.3
Debenture 2027	229.2	229.1
2.875% convertible bonds 2022 (note 17)	302.2	314.9
Non-current borrowings, excluding lease liabilities and Metrocentre compound financial instrument	4,567.4	4,718.9
Metrocentre compound financial instrument	192.4	189.5
Lease liabilities	78.3	75.8
	4,838.1	4,984.2
Total borrowings	5,080.8	5,035.3
Cash and cash equivalents (note 15)	(400.8)	(239.5)
Net debt	4,680.0	4,795.8

1    The current bank loan of £210.0 million relates to the part repayment of the SGS term loan. The repayment was made in full on 1 July 2019.

The fair value of total borrowings at 30 June 2019 was £5,280.8 million (31 December 2018: £5,242.0 million).

Analysis of the Group's net external debt is provided in the financial information including share of joint ventures section.

 

 

17 Convertible bonds

2.875 per cent convertible bonds ('the 2.875 per cent bonds')

In 2016 the Group issued £375.0 million 2.875 per cent Guaranteed Convertible Bonds due 2022 at par, all of which remain outstanding at 30 June 2019. Under the terms of the 2.875 per cent bonds, the exchange price is adjusted upon certain events including the payment of dividends by the Company over a certain threshold. At 30 June 2019 the exchange price was £3.7506 (31 December 2018: £3.7506) per ordinary share.

These bonds are designated at fair value through profit or loss and so are presented on the balance sheet at fair value. Gains and losses in respect of own credit risk are recognised in other comprehensive income and all other gains and losses are recognised in the income statement through the change in fair value of financial instruments line.

At 30 June 2019, the fair value of the 2.875 per cent bonds was £302.2 million (31 December 2018: £314.9 million). During the six months ended 30 June 2019, interest of £5.4 million has been recognised on these bonds within finance costs (six months ended 30 June 2018: £5.4 million).

2.5 per cent convertible bonds ('the 2.5 per cent bonds')

In 2012 the Group issued £300.0 million 2.5 per cent Guaranteed Convertible Bonds due 2018 at par, £160.4 million of which were outstanding at 1 January 2018. The outstanding 2.5 per cent bonds were settled in cash on 4 October 2018, the Final Maturity Date. During the six months ended 30 June 2018, interest of £1.9 million had been recognised on these bonds within finance costs.

 

18 Share capital and share premium

£m	Share capital	Share premium
Issued and fully paid:
At 1 January 2019 and 30 June 2019: 1,355,040,243 ordinary shares of 50 pence each	677.5	1,327.4

 

 

19 Financial risk management

The table below presents the Group's financial assets and liabilities recognised at fair value.

£m	At 30 June  2019	At 31 December  2018
Assets
Level 1                               Other investments -  fair value through other comprehensive income	7.3	8.9
Level 2                               Derivative financial instruments - fair value through profit or loss	0.1	4.7
Level 3                               Other investments -  fair value through other comprehensive income	1.7	1.6
Total assets	9.1	15.2
Liabilities
Level 1                               Convertible bonds - designated at fair value through profit or loss	(302.2)	(314.9)
Level 2                               Derivative financial instruments -  fair value through profit or loss	(303.5)	(285.2)
Total liabilities	(605.7)	(600.1)

 

Fair value hierarchy

Level 1: Valuation based on quoted market prices traded in active markets.

Level 2: Valuation techniques are used, maximising the use of observable market data, either directly from market prices or derived from market prices.

Level 3: Where one or more significant inputs to valuation are unobservable. Valuations at this level are more subjective and therefore more closely managed, including sensitivity analysis of inputs to valuation models. Such testing has not indicated that any material difference would arise due to a change in input variables.

Transfers into and transfers out of the fair value hierarchy levels are recognised on the date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 and 3 during the period.

Derivative financial instruments are initially recognised on the trade date at fair value and subsequently re-measured at fair value. In assessing fair value the Group uses its judgement to select suitable valuation techniques and make assumptions which are mainly based on market conditions existing at the balance sheet date. The fair value of interest rate swaps is calculated by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for similar instruments at the measurement date. These values are tested for reasonableness based upon broker or counterparty quotes.

Other investments at fair value through other comprehensive income, being investments intended to be held for an indefinite period, are initially and subsequently measured at fair value. For listed investments, fair value is the current bid market value at the reporting date. For unlisted investments where there is no active market, fair value is assessed using an appropriate methodology.

 

 

20 Cash generated from operations

£m	Notes	Six months  ended 30 June  2019	Six months  ended 30 June  2018
Loss before tax, joint ventures and associates		(820.2)	(490.0)
Adjusted for:
Revaluation of investment and development property	12	827.9	617.4
(Gain)/loss on disposal of subsidiaries		(0.1)	8.3
Gain on sale of investment and development property		(0.2)	-
Depreciation		3.2	1.7
Share-based payments		1.3	1.9
Lease incentives and letting costs		(5.8)	(7.0)
Net finance costs	7	153.1	37.5
Changes in working capital:
Change in trade and other receivables		(7.9)	8.4
Change in trade and other payables		(6.1)	(21.6)
Cash generated from operations		145.2	156.6

 

21 Capital commitments

At 30 June 2019 the Board had approved £192.9 million of future expenditure for the purchase, construction, development and enhancement of investment property. Of this, £151.9 million is contractually committed. The majority of this is expected to be spent during the remainder of 2019 and 2020.

 

22 Assets classified as held for sale

In April the Group announced the formation of a joint venture with Cale Street Investments LP for them to take part ownership of intu Derby for initial consideration of £108.7 million. This transaction completed on 8 July 2019 following the arrangement of senior debt financing and satisfying certain other completion conditions. In accordance with IFRS, at 30 June 2019 the Group has classified 100 per cent of intu Derby (which is part of the UK operating segment) and all its related assets and liabilities as held for sale.

The accounting for the part disposal of intu Derby at period end is a significant judgement as referenced in note 1. The Group has assessed the key terms set out in the shareholders agreement, including joint venture board discretion over any payment of distributions. As a result, the part disposal will be accounted for as an equity arrangement as opposed to a financing arrangement following completion.

Following this, management has then applied significant judgement to determine that the part disposal of intu Derby should be classified as an asset held for sale. The Group concludes the classification as held for sale is appropriate given contracts had been exchanged prior to 30 June 2019 with completion occurring on 8 July 2019.

The assets and liabilities below are presented at their carrying amount.

			£m
Assets of disposal groups classified as held for sale
Investment and development property			349.9
Cash and cash equivalents			9.3
Trade and other receivables			8.5
Total			367.7
Liabilities of disposal groups classified as held for sale
Trade and other payables			(11.1)
Borrowings			(148.1)
Total			(159.2)