HSTN.L Regulatory News (HSTN)

Hansteen Holdings PLC

("Hansteen", the "Group" or, the "Company")

Hansteen (LSE: HSTN), the investor in UK industrial property, announces its full-year results for the year ended 31 December 2017.

Financial Highlights

· IFRS profit increased by 86.6% to £204.3 million (FY 2016: £109.5 million)

· Normalised Total Profit of £107.6 million (FY 2016: £69.4 million) 1 2

· Normalised Income Profit of £51.9 million (FY 2016: £64.5 million) [1] [2]

· IFRS NAV per share of 135.1p (31 December 2016: 124.0p)

· EPRA NAV per share of 130.6p after return of capital at 11.1p premium to 31 December 2016 EPRA NAV of 128.9p 1

· Full year dividend of 6.1p per share (2016: 5.9p per share)

· Net debt to property value ratio of 27.6% (31 December 2016: 40.9%) 1

Operational Highlights

· German and Dutch portfolio sold for £1.12 billion generating a pre-tax profit of £49.2 million

· £578.1 million returned to shareholders

· Acquisition of Industrial Multi Property Trust PLC ("IMPT")

· Like-for-like UK occupancy improvement of 358,000 sq ft or 29.6% of the vacant space at the start of the year 3

· Like-for-like UK rent roll improvement of £2.1 million per annum 3

· Property valuation increase of £62.0 million or 8.2%

· £68.1 million of sales (excluding German and Dutch portfolio) generating profits of £5.7 million

Post Balance Sheet Events

· Contracts exchanged for the sale of IMPT for £116 million with completion due on 26 March 2018

· Saltley Compulsory Purchase Order ("CPO") notice irrevocably served, completed on 13 March 2018

· Proposed return of capital of 35p per share

Melvyn Egglenton, Chairman, commented: "The last 12 months have been an extremely busy and successful period for Hansteen with the three key elements of our business model working well. We have acquired properties in a competitive market at good prices through the corporate acquisition of IMPT, managed our assets effectively with increases in rent, occupancy and value and finally sold a significant part of the portfolio which realised a material amount of capital that has been returned to shareholders. Alongside that we have simplified the Company's Balance Sheet, settling the €100 million of convertible bonds.

Notwithstanding the real challenges surrounding the EU exit process, we have not seen any negative effect on our tenants' take up of space. E-commerce continues to enhance demand, which combined with limited availability and little new supply is driving rental growth. We are well positioned to continue to benefit from this demand. Our built portfolio has a yield of 7.5% which compares with an all-in cost of borrowing cost of 2.7%. We continue to believe that our diverse portfolio of urban industrial and warehouse properties presents a relatively rare opportunity in today's property sector to achieve a combination of income and capital growth".

Presentation for Analysts

A presentation to analysts (with dial in facilities and webex) will take place today at 09:30 at Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET.

Dial in details are as follows:

Direct DDI (s) for Participant Connection: UK Toll Number: +44 (0)203 139 4830 UK/Toll-Free Number: 0808 237 0030

Participant Pin Code: 91468179#

Webex details are as follows:

Audience URL: https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID=e63e4cba3824e289bd3cb97bea3b035f8 

Audience Password: 695800

For further details, please email Jeremy Carey at jeremy.carey@tavistock.co.uk or Kirsty Allan at kirsty.allan@tavistock.co.uk 

For more information:

CHAIRMAN'S REVIEW

I am pleased to present Hansteen's results and strategic report for the year ended 31 December 2017. We have delivered another year of record financial results and completed several complex, challenging and value-enhancing transactions. The Group has sold the German and Dutch portfolio, acquired the entire issued share capital of Industrial Multi Property Trust PLC ("IMPT"), settled the €100 million of convertible bonds and returned £578.1 million (53.4% of the Company's capital) to our shareholders. The UK portfolio has continued to perform strongly, enjoying a significant valuation uplift and record occupancy levels. The high level of activity has continued into 2018 with the sale of the IMPT portfolio and the Saltley Compulsory Purchase Order ("CPO").

RESULTS

Hansteen's IFRS profit for the year increased by 86.6% to £204.3 million (FY 2016: £109.5 million) which includes a profit of £121.4 million from the sale of the German and Dutch portfolio in June 2017. Despite the reduced earnings following the European sale, the business produced Normalised Income Profits ("NIP") of £51.9 million (FY 2016: £64.5 million) and Normalised Total Profit ("NTP") increased by 55.0% to £107.6 million (FY 2016: £69.4 million).

The Group's IFRS Net Asset Value ("NAV") was 135.1p per share at 31 December 2017 (2016: 124.0p). The Group's EPRA Net Asset Value was 130.6p per share at 31 December 2017 (2016: 128.9p). The comparative figure for 2016 is not a like-for-like comparison with 2017. During the year the EPRA NAV has changed as a result of:

· The return of capital of £578.1 million at a premium to December 2016 EPRA NAV of 11.1p per share

· The settlement of the convertible bonds

· The introduction of an accrual for the 2016 - 2018 Founder Long Term Incentive Plan ("Founder LTIP")

· Dividend payments of 3.7p and 2.3p during the year

Full details of these transactions are found in the Joint Chief Executives' Review.

DIVIDEND AND FUTURE RETURN OF CAPITAL

Following the strong financial performance of the Group during 2017 which produced record realised profits (Normalised Total Profit), the Board is pleased to announce an increase in the full year dividend. The interim dividend paid on 27 October 2017 was increased to 2.3p per share (November 2016: 2.2p per share) and the second ongoing dividend will be increased to 3.8p per share (May 2017: 3.7p per share) and will be paid on 17 May 2018. The ex-dividend date is 5 April 2018 and the dividend is payable to shareholders on the register at the close of business on 6 April 2018. A Property Income Distribution ("PID") of 3.7p is included in this second interim dividend payment. The total dividends therefore amount to 6.1p (2016: 5.9p).

Hansteen has paid a prudently progressive dividend for many years and it is the Board's intention to maintain the policy (as far as possible). We are currently in a period in which we have been substantial sellers of property and as a result have been returning capital to shareholders. Therefore, the progressive policy will apply in proportion to any reduction in the capital base.

As referred to above, since the year-end we have contracted to sell the IMPT portfolio and Saltley Business Park has become the subject of a CPO as announced on 5 February 2018 and 13 March 2018 respectively. On completion, the combined net proceeds are expected to be at least £150.0 million and, with no debt to repay as the properties were not secured, the Group's cash balance of £71.2 million at 31 December 2017 will rise significantly. Owing to the current high level of demand for industrial property investments, opportunities to reinvest these substantial cash deposits in properties that fit the Hansteen business model are likely to be limited. As the cash deposits would earn virtually no interest and therefore materially dilute the returns from the business, we consider that returning more capital is in the best interests of all shareholders. Therefore, the Board is proposing a capital distribution of 35p per share (£144.5 million) to shareholders in the first half of 2018. More details will be contained in the circular which will be posted to shareholders on 20 March 2018.

BOARD CHANGES

Rebecca Worthington has stepped down as non‐executive Director and Chair of the Audit Committee of the Company following her appointment to the Board of British Land PLC. Rebecca has been a non‐executive Director of the Company since June 2014 and will depart the Board with effect from 20 March 2018. On behalf of the Board, I would like to thank Rebecca for her guidance in our deliberations and her contribution and commitment to the Company's development. We wish her the very best in her new role with British Land Plc. As announced on 22 February 2018, the Board has appointed Jim Clarke as an independent non‐executive Director with effect from 27 February 2018. Jim, a Chartered Accountant, has extensive board experience of listed companies in the property and leisure sectors and will succeed Rebecca Worthington as Chair of the Audit Committee.

OUTLOOK

The last 12 months have been an extremely successful period for Hansteen with the three key elements of our buy, work and sell business model working well. We have acquired properties in a competitive market at good prices as shown with the corporate acquisition of IMPT, then managed our assets effectively with increases in rent, occupancy and value and finally sold a significant part of the portfolio through the disposal of the German and Dutch assets. Alongside that we have returned capital to shareholders and simplified the Company's Balance Sheet, settling the €100 million of convertible bonds. In 2018 we have already contracted to sell in excess of £150.0 million of property.

Notwithstanding the real challenges surrounding the EU exit process, we have not seen any negative effect on our tenants' take up of space. The extraordinarily broad spread of economic activities carried out in our properties brings both resilience and growth to our earnings. E-commerce continues to enhance demand for UK urban industrial and logistics space and limited availability combined with little new supply is driving rental growth. The Group retains a portfolio of mainly UK multi-let industrial property which is well positioned to continue to benefit from this demand. Our built portfolio has a yield of 7.5% which compares with an all-in cost of borrowing of 2.7%. We continue to believe that our diverse portfolio of urban industrial and warehouse properties presents a relatively rare opportunity in today's property sector to achieve a combination of income and capital growth.

Melvyn Egglenton

Chairman

19 March 2018

Joint Chief Executives' REVIEW

The Hansteen business model remains unchanged and is based on two key strengths: an opportunistic and entrepreneurial approach to buying and selling property; and a motivated, skilled and experienced management platform. Since incorporation in 2005 we have acquired what we believe are the right assets at the right prices and these high yielding industrial properties have performed very well. Recent years have seen an increased appreciation by investors of our type of property and the transactions that we have completed both in 2017 and into 2018 have indicated this appetite is continuing. We set out the full details of these transactions in this report as we summarise what has been a very successful year for the business.

FINANCIAL RESULTS FOR 2017

The Group's financial performance during 2017 was outstanding and we are pleased to present another set of strong results. The German and Dutch portfolio was sold in June 2017 for €1.28 billion but despite losing the annualised rent from the portfolio of €93.1 million, the Normalised Income Profit ("NIP") for the year to 31 December 2017 was £51.9 million (FY 2016: £64.5 million). NIP excludes profits or losses from the sale of properties and valuation movements and therefore reflects the net rental income received from the portfolio after the deduction of costs and debt interest. Normalised Total Profits ("NTP") were £107.6 million (FY 2016: £69.4 million). NTP comprises NIP plus profits or losses from the sale of properties and realised profits from one-off items.

The Board believes that these normalised profit measures (NIP and NTP) reflect the underlying realised profits from the business before considering property and other revaluation movements. The table below sets out the calculation and results for NIP and NTP with a breakdown between 'Continuing Operations', being predominantly the UK portfolio and 'Discontinued Operations', being the German and Dutch portfolio which was sold in June 2017.

The Group uses a number of alternative performance measures which are not defined within IFRS. The Board use these measures in order to assess the underlying realised profits from the business and as such these measures should be considered alongside the IFRS measures.

The sale of the German and Dutch portfolio contributed a profit of £49.2 million to the 2017 NTP. There was an additional £72.2 million of realised exchange gains included in the £204.3 million IFRS profit (FY 2016: £109.5 million) of which £57.0 million was previously credited to reserves in the balance sheet and £15.2 million arose during 2017. Basic IFRS EPS was 28.2p (FY 2016: 14.8p) and adjusted EPS was 6.9p (FY 2016: 6.7p). Adjusted EPS is based on EPRA EPS adjusted for the fair value of the Founder LTIP charge as shown in note 9.

The Board regards EPRA NAV per share plus dividends as the best measure of value growth. The Group's EPRA NAV per share at 31 December 2017 was 130.6p (31 December 2016: 128.9p). However this year's EPRA NAV per share is not a true comparative number to last year because in addition to deducting a dividend of 6.0p per share we have also returned capital at an 11.1p premium per share to the EPRA NAV per share at 31 December 2016. The 2017 EPRA NAV also introduces an allowance for the Founder LTIP by including an additional 13.0 million shares in the EPRA NAV per share calculation, a dilution equivalent to 4.1p per share.

The EPRA NAV per share at 31 December 2016 was 128.9p and prior to the return of capital in mid-November 2017, shareholders had received two dividends of 3.7p and 2.3p per share. The return of capital provided 140p per share for 50% of the shares, and the EPRA NAV per share at 31 December 2017 was 130.6p, a return of 10% during the year. Over two years the return to shareholders on the same basis is 32%.

Further details of the financial performance and the Founder LTIP are contained later in the Joint Chief Executives' Review and the reconciliation of NIP and NTP to the IFRS profit before tax is contained in note 4 to the condensed financial statements. Basic NAV per share is reconciled to EPRA NAV per share in note 9 to the condensed financial statements.

Sale of German and Dutch Portfolio

The German and Dutch Portfolio was sold on a debt free basis for cash to funds advised by affiliates of the Blackstone Group L.P. and M7 Real Estate. The value given to the properties was €1.28 billion which represented a premium of approximately €76 million (6%) to the 31 December 2016 valuation. The scale of the transaction required shareholder consent by way of a circular and a Shareholders General Meeting where the sale was overwhelmingly supported.

The net cash received by Hansteen from the sale was approximately €1.276 billion after the deduction of €25 million which was retained by Blackstone to satisfy 50% of the latent tax liabilities relating to the German properties. Immediately upon completion €471 million was used to repay debt secured against the German and Dutch Portfolio and approximately €36 million was used, or has been retained to meet costs and other tax liabilities associated with the sale. Following these deductions and repayments, the net cash increase was approximately €769 million which was partly used to settle the convertible bonds and partly used for the return of capital as explained below.

Return of capital

The sale of the German and Dutch portfolio was in line with our long-term business and portfolio strategy of buying at a low point in the cycle, adding value through improved asset management and subsequently realising the investment at a higher point in the cycle.

After exploring various options for the method of returning the capital, it was determined that a tender offer was the most appropriate means of distributing the cash to shareholders. The scale of the return of capital required shareholder approval and again this was overwhelmingly supported by our shareholders. In November 2017, we completed the tender offer whereby qualifying shareholders were offered the opportunity to sell at least 1 in every 2 shares for 140p per share. The tender offer was successful and 412.9 million shares were purchased for a total of £578.1 million. The price represented a premium of 13.8% over the closing share price on 20 March 2017 (the day before the announcement of the proposed sale of the German and Dutch portfolio) and a premium of 11.1p or 8.6% to the EPRA NAV per share at 31 December 2016.

Industrial Multi Property Trust PLC ("IMPT")

On 17 February 2017, Hansteen and the Independent Directors of IMPT reached agreement on the terms of a recommended all-cash offer for the entire issued ordinary share capital of IMPT. Through a combination of stock market purchases and valid acceptances of the 330p per share offer, Hansteen acquired all of the issued share capital of IMPT by 23 July 2017. With a yield on the passing rent of 9.4% and a vacancy rate of 8.2%, the acquisition represented a good opportunity to acquire a significant amount of light industrial property at an attractive price.

Our UK asset management team was able to increase the occupancy, rent roll and ERV since acquisition and as a result, the portfolio was valued at £109.7 million at 31 December 2017. On 5 February 2018 we announced that we had exchanged unconditional contracts to sell the portfolio for £116.0 million.

PROPERTY PORTFOLIO

The built portfolio has a yield of 7.5% on the passing rent and 8.0% on the contracted rent. Including the 452 acres of undeveloped land, the total portfolio has a yield on the passing rent of 7.0% and a yield on the contracted rent of 7.5%. The summary analysis of the portfolio, at 31 December 2017, is set out below:

Like-for-like net occupancy (measured by taking the vacant area at the start of the year, adding vacancy on purchases and then comparing that with the vacancy at the end of the year) has improved in total by 255,000 sq m (2.75 million sq ft). A significant proportion of this improvement was due to the disposal of the vacancy contained within the German and Dutch portfolio. However, the UK portfolio has shown a significant like-for-like improvement of 33,297 sqm (358,410 sq ft) or 29.5% of the vacancy at the start of the year. This achievement has come through a combination of letting vacant space and selling vacant units, both an important part of the Hansteen business model.

The UK portfolio finished 2017 with a record high occupancy rate of 93.6% as occupational demand continued to outstrip supply. Limited new developments combined with this strong demand is driving rental growth. We have a relatively short weighted average unexpired lease term ("WAULT") on our UK portfolio of 3.2 years which allows this rental growth to be achieved relatively quickly and as a result, the passing rent per let sq ft across the UK portfolio has increased by 8.8% from £3.41 per sq ft at December 2016 to £3.71 per sq ft at 31 December 2017. The net like-for-like improvement in passing rent for 2017 was £2.1 million. This like-for-like improvement is calculated by taking the passing at the start of the year, adding rent from purchases, deducting rent lost from sales and then comparing that with the passing rent at the end of the year.

Our properties are extremely flexible and appeal to a large range of occupiers. With an average rent of just under £20,000 per annum, we are not dependent on any particular sectors or industries, which makes our rent roll very resilient. We have benefited from the growth in e-commerce in recent years and approximately a third of the 900 new lettings and renewals completed in 2017 were to companies that trade on the internet.

Property valuation and property disposals

The value of the portfolio has increased by £62.0 million or 8.2% since December 2016. Despite the valuation increase, the built portfolio has a high yield of 7.5% (passing rent divided by value).

The sustained investor appetite for UK multi-let light industrial property allowed for the disposal of 38 assets during the year for a combined consideration of £68.1 million. Purchasers ranged from individual owner occupiers to listed property companies and the sales generated profits of £5.7 million or 9.2% above the 31 December 2016 valuation.

NET ASSET VALUE

The net assets attributable to equity shareholders at 31 December 2017 were £557.5 million (2016: £923.6 million). The movement in IFRS net assets is summarised in the table below:

Gearing

At 31 December 2017, net debt was £225.4 million (31 December 2016: £710.1 million) and net debt to value was 27.6% (31 December 2016: 40.9%). The table below sets out the calculation of net debt and the net debt to value ratio:

As at 31 December 2017, the Group had total bank facilities of £334.1 million (31 December 2016: £771.1 million), of which £297.1 million were drawn (31 December 2016: £712.5 million). Borrowings are in the same currency as the assets against which they are secured. Cash resources at the year-end were £71.2 million (31 December 2016: £82.5 million). The weighted average debt maturity, at 31 December 2017, was 3.6 years and the weighted average maturity of hedging was 3.6 years.

Analysis of the Group's bank loan facilities at 31 December 2017 is set out below:

In addition to the bank loan facilities, the Group has a £2.5 million finance lease in place to fund a property in Belgium. As at 31 December 2017, the lease had an unexpired term of five years and an interest rate implicit in the lease of 2.8%.

As at 31 December 2017, the Group had borrowings including obligations under finance leases, of £299.6 million (31 December 2016: £816.6 million, which also included the convertible bond) of which £150.0 million was swapped at an average rate of 0.53% and £50.0 million was capped at an average rate of 0.75%. The average all-in borrowing rate for the Group, at 31 December 2017, was 2.7% (31 December 2016: 3.2%).

Convertible Bond

In June 2017 Hansteen offered to buy and/or convert the €100 million of convertible bonds due in 2018. All of the bondholders chose to settle their bonds with 15.9% opting to receive cash and 84.1% opting to receive shares. The cash settlement was paid on 5 July 2017 and the shares were issued on 10 July 2017. Further details on the convertible bonds are shown in note 13 of the condensed financial statements.

Currency

Following the sale of the German and Dutch portfolio during 2017, the Group's exposure to changes in the Euro/GBP exchange rate is now significantly reduced. As such, the Board has decided not to renew the options that were hedging a total of €67.5 million of net euro income which expired during the year. Hansteen reports its results in sterling and as at 31 December 2017, approximately 8.9% (£49.6 million or €56.0 million) of the Group's net assets were denominated in euros.

Founder Long Term Incentive Plan ("Founder LTIP")

The Founder LTIP was established at IPO in November 2005. Under the scheme, if the growth in the Group's EPRA NAV per share plus dividends (and other returns to shareholders) exceeds compound growth of more than 10% per annum over a fixed three year period, the Joint Chief Executives will each receive an award of shares with a value of 12.5% of the outperformance multiplied by the number of shares in issue at the end of the performance period. The current performance period runs from 1st January 2016 to 31st December 2018 and as previously reported, after consultation with shareholders and the directors, this will be the final performance period for which Founder LTIP shares can be awarded.

The returns so far are ahead of the target levels. There is a further 12 months to go and therefore the potential awards can only be estimated at this stage and is dependent on the performance in the final year.

The calculation of performance in the current period has been materially affected by the tender offer of November 2017 and as explained in the return of capital circular and in the Remuneration Committee report, the Founder LTIP calculation will be adjusted and measured over two periods, being pre and post the return of capital date of 14 November 2017.

EPRA NAV per share includes the impact of dilutive shares and dilution is required only to the extent that the results to date have exceeded the full target to 31 December 2018. Under this methodology the accrual to 31 December 2017 is 6.5 million shares to each of the Joint Chief Executives. As the full three year hurdle has been met by 31 December 2017, the value of the awards will increase by 25% of all additional returns made in 2018.

The IFRS pre-tax profit includes a charge of £19.1 million related to the potential Founder LTIP awards and associated National Insurance contribution. Only the effect of the associated National Insurance contributions on the Founder LTIP awards affects the NAV because, in accordance with IFRS, the charge for the potential Founder LTIP awards excluding the associated National Insurance contribution is credited back through equity.

PERFORMANCE AND OUTLOOK

Performance

Hansteen's performance measured by £100 invested at the time of the Company's IPO in 2005 ranks fourth out of the 120 property companies publicly quoted at the time. The companies who produced a better performance over that period were Shaftesbury, Derwent London and Great Portland Estates. Interestingly their performance numbers appear to have peaked several years ago whereas ours have become stronger more recently reflecting the fact that regional urban industrial properties are late cycle performers.

Another feature of Hansteen's performance is that a large proportion of the Company's return is realised.

Since IPO Hansteen has raised £717.9 million (including the convertible bonds) and following the £144.5 million planned later this year we will have returned £722.4 million. We have also paid dividends (and convertible interest) since IPO of £323.5 million. The NAV of the remaining business will be c.£414 million.

For much of the life of Hansteen and its predecessor company, Ashtenne, the type of properties in which we specialise, regional urban industrial and logistics properties have been unfashionable with low rents and capital values and high yields. Over the last couple of years, it has become clear that occupational demand for our kind of properties is materially outstripping supply and rents have started to significantly grow. As a result, a broad and deep collection of investors have put our kind of properties on their shopping list. This positive dynamic is of course good for Hansteen's existing portfolio. However, it does mean that acquiring further properties that fit our business model will be challenging.

Owning a stabilised diversified portfolio of urban industrial and logistics properties with a robust and growing rent roll is a strong investment. However, we believe in our buy, work and sell business model and expect to continue to realise investments as they mature. This will bring new management challenges. Following the IMPT sale and Saltley CPO and not with-standing the potential further return of capital, we intend to retain meaningful firepower to enable us to make acquisitions if we deem them value-enhancing. However, if we cannot find acquisitions that fit our criteria, we will probably continue to return capital.

Outlook

There are two market dynamics that are relevant to Hansteen. Firstly, there is tenant demand as this governs the strength and sustainability of our rent rolls. Secondly there is investor demand as this influences our buying and selling activity.

With regard to tenant demand, for a sustained period, all of the UK Hansteen offices have been reporting high levels of occupier enquiries and take up which our asset management team have translated into increases in like-for-like passing rent and like-for-like occupancy. Limited availability and little new supply is driving rental growth in all UK regions. With a low average let rent of £3.71 per sq ft, new urban logistics development is unlikely until rents and capital values rise further. Our portfolio is therefore well placed to benefit.

With regard to investor demand, we believe that our sector of commercial property is the only one where values today are still lower than they were prior to the global financial crisis in 2008 and new buyers are emerging in our subsector of the market. The challenge is therefore the difficulty of buying portfolios at prices reflecting our business model. The benefit however, is a deeper and appreciative market in our subsector for us to sell in to.

Ian Watson Morgan Jones

Joint Chief Executives

19 March 2018

Principal Risks AND UNCERTAINTIES

The Board recognises that effective risk management is essential to Hansteen achieving its objectives and has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.

The Board, senior management and staff continually monitor the significant risks which they believe the Group is facing. There will always be some risk when undertaking property investments and the control process is aimed at mitigating and minimising these risks where possible, rather than eliminating them. Appropriate controls are established to mitigate newly identified risks, parameters are set under which management can operate and, where necessary, action is taken to improve existing controls. The Audit Committee, as part of its remit, also consider in detail the significant risks faced by the Group and the adequacy of the controls in place.

Following the sale of the German and Dutch businesses in the first half of the year the Board has re-assessed the principal risks facing the Group; the Board considers them to be consistent with the prior year with the exception of the risks related to foreign currency, the probability of which the Board considers to have reduced.

The current key risks identified by the Board, their potential impact and the steps taken to mitigate them are presented below.

Corporate and Social Responsibility

Environment

In line with Hansteen's policy of being environmentally and sociably responsible, environmental legislation and relevant codes of practice are adhered to. Where possible, Hansteen seeks to reduce emissions and pollution.

Community

Hansteen continues to support local and national charities. Regular events are held in each office to support charitable causes. We will support staff who voluntarily give up their time to participate in charitable programmes during working hours. We continue to offer work experience opportunities to local schools in London.

People

The present and future success of Hansteen is dependent upon its ability to recruit, motivate, manage and retain appropriately qualified staff.

This year our summer internship programme provided opportunities for a number of students to join the teams in our regional offices and gain hands-on experience in many aspects of Asset Management. Hansteen recruited six paid interns across the United Kingdom offering them the chance to work closely with our experienced members of staff. The scheme is designed to offer the interns a comprehensive view of asset management so that their learning experience as well as their employability after graduation is enhanced.

In 2017, we utilised a variety of recruitment sources so that we could widen our appeal to female applicants and this resulted in a record number of female interns.

Hansteen continues to support the interns from previous years' intakes who secured permanent jobs as Graduate Surveyors. By sponsoring their development, Hansteen has helped four people to successfully complete their Assessment of Professional Competence ("APC"). The APC gives the interns the practical training and experience which, when combined with academic qualifications leads to full RICS membership. This sponsorship involves providing the interns with peer-to-peer learning, workshops, senior mentorship and mock interview panels. We expect a further five staff to qualify in 2018.

We continue to seek new and innovative ways to enhance our support of the regional universities. We have conducted student workshops designed and led by our Asset Managers and for the past three years we have joined course leaders on judging panels to formally assess student presentations. In providing direct and constructive feedback, we aim to support and stretch the students' personal and professional development in board room and interview scenarios.

Equality and Diversity

Hansteen has a diverse workforce and commitment to being an equal opportunities employer. We understand that the performance and engagement of our employees is critical to our business success. We hire people from a multitude of backgrounds and our training takes a comprehensive and personal approach allowing us to focus on matching the right people to the right roles. Our employment policies and practices reflect a culture where decisions are made solely on the basis of individual capability and potential in relation to the needs of the business.

We are committed to providing equal opportunities and an entirely non-discriminatory working environment. Our diversity policy aims to ensure that no job applicant or employee receives less favourable treatment because of gender, marital status, race, age, sexual preference, religion, belief or disability. All decisions are based on the merits of the individual concerned. The Group is dedicated to undertaking its business operations in a way which respects individual human rights, treats individuals with dignity and allows freedom of association. We value the contribution of each and every one of our employees and together we have created an inspiring working environment where everyone is engaged, motivated and safe from discrimination so they can fulfil their potential.

All employees are eligible to participate in career development and promotion opportunities. Support also exists for employees who become disabled to continue in their employment or to be retrained for other suitable roles.

As at 31 December 2017, the composition of Hansteen's employees, including both Executive and Non-Executive Directors, was as follows:

statement of directors' responsibilities

The responsibility statement has been prepared in connection with the Company's full Annual Report for the year ended 31 December 2017. Certain parts of the Annual Report are not included in this announcement, as described in note 1.

Responsibility statement

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the Chairman's Statement and the Joint Chief Executives' Review include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board:

Morgan Jones and Ian Watson

Joint Chief Executives

19 March 2018

Consolidated income statement for the year ended 31 December 2017

Consolidated statement of comprehensive income for the year ended 31 December 2017

All components of other comprehensive income may be recycled to profit and loss.

Balance sheet as at 31 December 2017

The financial statements of Hansteen Holdings PLC, registered number 05605371, were approved by the Board of Directors and authorised for issue on 19 March 2018.

Signed on behalf of the Board of Directors

Ian Watson and Morgan Jones

Joint Chief Executives

Statements of changes in equity for the year ended 31 December 2017

Cash flow statement for the year ended 31 December 2017

Notes to the financial statements

1. General information

Hansteen Holdings PLC is a company which was incorporated in the United Kingdom and registered in England and Wales on 27 October 2005. The Company is required to comply with the provisions of the Companies Act 2006. The address of the registered office is 1st Floor, Pegasus House, 37-43 Sackville Street, London W1S 3DL.

The Group's principal activity is investing in predominantly industrial properties in the United Kingdom.

These condensed financial statements are presented in Sterling because that is the currency of the primary economic environment in which the Company operates.

2. Basis of preparation

The financial information set out in these condensed financial statements does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

The statutory accounts have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee as endorsed by the EU relevant to its operations and effective for accounting periods beginning on 1 January 2017.

In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2017. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective:

A number of new standards and amendments to standards and interpretations have been issued but are not yet effective for the current accounting period. Certain standards which could be expected to have an impact on the financial statements are discussed in further detail below.

3. Revenue and cost of sales

An analysis of the Group's revenue and cost of sales is as follows:

Including interest income of £0.3 million (20161: £0.1 million), total revenue was £59.3 million (20161: £37.5 million).

4. Normalised Income Profit and Normalised Total Profit

The Group uses a number of Alternative Performance Measures ("APMs") which are not defined or specified within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and allow greater comparability between periods but do not consider them to be a substitute for or superior to IFRS measures. Key APMs used are Normalised Income Profit ("NIP"), Normalised Total Profit ("NTP"), measures defined by EPRA and adjusted EPS.

NIP and NTP are adjusted measures intended to show the underlying earnings of the Group before fair value movements and other non-recurring or otherwise non-cash items. Fair value movements include those in relation to investment property, financial assets and financial liabilities. Non-recurring or otherwise non-cash items include foreign exchange gains or losses and the Founder LTIP charge. A reconciliation of NIP and NTP to the Profit for the year prepared in accordance with IFRS is set out below. A reconciliation of EPRA measures and adjusted EPS is included within Note 9.

Administrative expenses for 2017, as presented in Normalised Income Profit, exclude a charge of £19.1 million relating to the Founder LTIP for the 3 year period ending 31 December 2018 (2016: nil). Further details are set out in note 15.

The £9.3 million change in fair value of foreign currency derivatives in 2016 relates to options to hedge European net assets. The hedges expired in June 2016 and were not replaced.

The interest incurred on the conversion of convertible bonds of £1.6 million (2016: £3.4 million) was excluded from the net interest payable in NIP as this expense is not recurring.

During 2016, the Group acquired the remaining 50% of the units in the Hansteen Saltley Unit Trust for a net price of £9.3 million, taking its ownership to 100% and resulting in a gain on business combination of £0.4 million. The Group also acquired the remaining 18.2% of Ashtenne Industrial Fund Unit Trust for a net price of £39.5 million, taking its ownership to 100% and resulting in a gain on business combination of £3.9 million. The Group's investments in Hansteen Saltley Unit Trust and Ashtenne Industrial Fund Unit Trust are now consolidated. The remaining negative goodwill and other gains of £1.0 million relates to a gain recognised upon acquiring further units in the Ashtenne Industrial Fund Unit Trust while it continued to be classified as an associate.

5. Operating segments

Segment revenues and results

The Group's reportable segments are determined by geographic location, which represents the information reported to the Group's Directors for the purposes of resource allocation and assessment of segment performance. A segment's result consists of its gross profit as detailed for the Group in note 3. Administrative expenses and net finance costs are managed as central costs and are therefore not allocated to segments. Gains/(losses) on investment properties by segment are also presented below.

Segment assets

For the purposes of monitoring segment performance and allocated resources between segments, the Directors monitor the investment and trading properties attributable to each segment. All assets are allocated to reportable segments with the exception of investments in associates and elements of cash, derivatives and tax balances that are managed centrally.

* Includes investment properties held for sale.

* Includes investment properties held for sale.

6. Other operating income

In 2017, other operating income includes £0.5 million of insurance receipts and £0.1 million relating to a forfeited deposit on an exchange which did not complete.

In 2016, other operating income includes £0.1 million of insurance receipts.

7. Tax

UK Corporation tax is calculated at 19.25% (2016: 20.00%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

In addition to the tax charge on continuing operations above, there is a £2.1 million tax charge relating to ordinary profits arising on the discontinued operations and a £7.7 million tax charge arising on the profit on disposal of discontinued operations as disclosed in note 10.

1 Re-presented to classify the German and Dutch portfolio as discontinued operations

The tax (credit)/charge for the year can be reconciled to the profit per the income statement as follows:

The Group elected to be a UK REIT in 2009 following admission to the Official List. The UK REIT rules exempt the profits of the Group's property rental business from UK corporation tax. Gains on UK properties are also exempt from tax provided they are not held for trading. The Group's UK activities are otherwise subject to UK corporation tax. To remain a UK REIT there are a number of conditions to be met in respect of the principal company of the Group, the Group's qualifying activity and its balance of business which are set out in the UK REIT legislation in the Corporation Tax Act 2010.

8. Dividends

As a REIT, the Company is required to pay Property Income Distributions ("PIDs") equal to at least 90% of the Group's exempted net income, after deduction of withholding tax at the basic rate of 20% (2016: 20%). £32.9 million of the dividends paid during the year ended 31 December 2017 is attributable to PIDs (2016: £24.2 million).

9. Earnings per share and net asset value per share

The European Public Real Estate Association ("EPRA") has issued recommended bases for the calculation of certain earnings per share ("EPS") information. Diluted EPRA EPS is reconciled to the IFRS measure in the following table.

As noted in note 4 the Group uses a number of APMs which are not defined within IFRS. Normalised Income Profit and Normalised Income Profit have been defined in note 4 and adjusted EPS is defined below.