HSTN.L Regulatory News (HSTN)

Hansteen Holdings PLC

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

HALF YEAR RESULTS

Hansteen (LSE: HSTN), the investor in urban multi-let industrial property, announces its half year results for the six months ended 30 June 2018.

Financial highlights from continuing operations

· IFRS profit increased to £29.2 million (H1 2017: £13.3 million)

· Normalised Income Profit (NIP) of £13.6 million (H1 2017: £15.5 million[1])

· Normalised Total Profit (NTP) of £20.2 million (H1 2017: £16.8 million1)

· EPRA NAV per share of 100p after returning 35p of capital (31 December 2017: 131p1)

· IFRS NAV per share of 106p after returning 35p of capital (31 December 2017: 135p)

· October interim dividend increased by 4.3% to 2.4p per share (November 2017: 2.3p per share)

Operational highlights

· Property valuation increase of 3.7% or £24.1 million

· 362 new UK leases / renewals at 4.6% ahead of ERV at 31 December 2017

· IMPT portfolio sold for £116 million generating a profit of £6.1 million over 31 December 2017 valuation

· Saltley Business Park compulsorily purchased (CPO)

· £9.9 million of other sales generating profits of £0.3 million over 31 December 2017 valuation

· £144.5 million (35p per share) of capital returned to shareholders in May 2018

Post balance sheet events

· Contracts exchanged to acquire 34 assets for £57.3 million (including costs) reflecting a net initial yield of 9.15%.

Melvyn Egglenton, Chairman, commented: "This has been a busy and successful period for Hansteen. We have sold the IMPT portfolio, received a down payment for the CPO of Saltley Business Park and returned £144.5 million of capital to shareholders. Meanwhile, the portfolio continued to perform strongly enjoying substantial valuation growth over the six-month period.

This pace has continued into July and August with the exchange of contracts to acquire 34 assets for £57.3 million (including costs) with a rent roll of £5.25 million per annum, reflecting a net initial yield of 9.15%"

Ian Watson and Morgan Jones, Joint Chief Executives, added: "The backdrop to our business remains positive. Occupational demand is solid with very limited supply in all our regions. Rents and capital values are growing but at a time when there is no new meaningful supply on the horizon.

The investment case for urban multi-let industrials is stronger than ever and increasingly well understood. As a result, we continue to see new capital looking to invest. A stabilised and diversified portfolio like ours with a robust and growing rent roll provides ongoing solid and attractive returns. However, we remain committed to our buy, work and sell business model and expect to continue to realise investments over the next couple of years. As we have shown with the recent acquisition, if we identify opportunities that fit our model we will keenly pursue them but our expectation is that we will be net sellers for the foreseeable future."

For more information:

Chairman's interim statement

The first six months of 2018 continued to be a busy and successful period for Hansteen. We have sold the IMPT portfolio, received a down payment for the compulsory purchase order (CPO) of Saltley Business Park and returned £144.5 million of capital to our shareholders. Meanwhile, the portfolio continued to perform strongly enjoying substantial valuation growth over the six-month period.

This pace has continued into July and August with the exchange of contracts to acquire 34 assets for £57.3 million (including costs) with a rent roll of £5.25 million per annum, reflecting a net initial yield of 9.15%. The acquisition was made by the vehicle that owned Saltley and therefore we expect to recover the acquisition costs in due course under the re-investment provisions of the CPO.

Results

Hansteen's IFRS profit for the six months to 30 June 2018 increased to £29.2 million (H1 2017: £13.3 million) and includes a like-for-like property revaluation uplift of £24.1 million or 3.7%. This revaluation was generated from a smaller portfolio following the 21 asset sales in the second half of 2017, the sale of IMPT and the Saltley CPO in 2018. Despite the reduced rent roll following these disposals, the business produced Normalised Income Profit (NIP) of £13.6 million (H1 2017: £15.5 million) and Normalised Total Profit of £20.2 million (H1 2017: £16.8 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. NTP comprises NIP plus profits or losses from the sale of properties and realised profits from one-off items.

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.

Basic IFRS EPS was 7.1p (H1 2017: 1.7p) and adjusted EPS was 3.2p (H1 2017: 2.0p). Adjusted EPS is based on EPRA EPS adjusted for the fair value of the Founder LTIP charge. EPRA EPS and adjusted EPS are reconciled to basic IFRS EPS in note 11 to the condensed financial statements.

The Board regards EPRA NAV per share plus dividends and other returns to shareholders as the best measure of value growth. The Group's EPRA NAV per share at 30 June 2018 was 100p after paying a dividend of 3.8p and returning 35p per share to shareholders. The EPRA NAV per share at 31 December 2017, before the 35p capital return was 131p. The calculation of the EPRA NAV per share at 30 June 2018 takes account of the Founder LTIP, details of which are set out later in the Statement.

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. A reconciliation of NIP and NTP to the IFRS profit before tax is contained in note 9 to the condensed financial statements. Basic NAV per share is reconciled to EPRA NAV per share in note 10 to the condensed financial statements.

Dividend

The Board has increased the interim dividend by 4.3% to 2.4p per share (November 2017: 2.3p per share) reflecting the strong realised profit performance. The dividend payment of 2.4p per share will include a 2.4p Property Income Distribution (PID) and will be paid on 26 October 2018. The associated record date is 28 September 2018 and the ex-dividend date is 27 September 2018.

Industrial Multi Property Trust PLC (IMPT)

On 27 March 2018, Hansteen completed the sale of the IMPT portfolio for £116 million. After acquiring the portfolio in the first half of 2017, our UK asset management team was able to increase the occupancy, rent roll and ERV and, as a result, the portfolio was valued at £109.7 million at 31 December 2017. The sale has generated a profit over the 31 December 2017 valuation of £6.1 million after fees and expenses.

Saltley Compulsory Purchase Order (CPO)

On 13 March 2018, the Secretary of State for Transport acquired Saltley Business Park, Birmingham by way of a CPO under the High Speed Rail (London - West Midlands) Act 2017, to enable construction of the first phase of the HS2 route. As part of the CPO process, High Speed Two (HS2) Limited, acting on behalf of the Secretary of State, made a down payment of £36.96 million and a mutual valuation process is under way which is designed to establish the property's market value.

Return of capital

The sale of the IMPT portfolio and the Saltley Business Park CPO generated net cash proceeds in excess of £150 million. Owing to the high level of demand for industrial property investments, opportunities to reinvest these substantial cash deposits in properties that fitted the Hansteen business model were limited. As the cash deposits would have earned virtually no interest and, therefore, materially dilute the returns from the business, the Board considered that returning the capital to the shareholders by means of a reduction and return of capital was in the best interest of all shareholders. The Company's share premium and capital redemption reserve were reduced by £144.5 million and each shareholder received 35p per share in cash on or around the 11 May 2018.

Since the Company's IPO, Hansteen has raised £717.9 million, including convertible bonds, and has made distributions of income and capital which along with the net asset value of the remaining business amounts to c£1.5 billion. (£717.9 million raised, £339.2 million of dividends paid, c£722.4 million of capital returns, and a retained NAV of £439 million.)

Property portfolio

The built portfolio has a yield of 7.4% on the passing rent and 7.9% on the contracted rent. Including the 469 acres of undeveloped land, the total portfolio has a yield on the passing rent of 6.8% and a yield on the contracted rent of 7.3%. The summary analysis of the total portfolio, at 30 June 2018, is set out below:

Occupational demand has continued to outstrip supply in 2018. This, combined with very limited new development is driving rental growth across the UK. In the first six months of the year our team has secured 362 new lettings or renewals at rent levels which are 4.6% higher than the ERV at 31 December 2017. Like-for-like net occupancy (measured by taking the vacant area at the start of the period, adding vacancy on purchases and then comparing that with the vacancy at the end of the period) has improved marginally. This statistic follows a similar pattern to previous years where leases ending at 31 December create a marginally negative effect during the early months of the year which we expect to reverse during the latter part of the year.

Property valuation, disposals and acquisitions

The like-for-like value of the total portfolio (after disposals) has increased by £24.1 million or 3.7% since 31 December 2017. The UK portfolio increased by £24.4 million or 4.0% and the value of the Belgium and France portfolio decreased by £0.3 million of 1%. Despite the overall valuation increase, the built portfolio retains a high yield of 7.4% (passing rent divided by value).

In addition to the disposal of the IMPT portfolio and the Saltley CPO, a further seven properties were sold for £9.9 million generating profits of £0.3 million above the 31 December 2017 valuation.

On 6 August 2018, we announced that contracts had been exchanged for the acquisition of a portfolio of 34 assets located throughout the UK with a focus on the North West for £57.3 million (including costs), adding 1.4 million sq ft of space to the portfolio. The passing rent is £5.25 million per annum generated from more than 200 tenants providing a diverse and secure income stream. We believe that the portfolio contains a number of asset management opportunities which will create value in both the short and longer term. The purchase of 31 of these assets completed on 16 August 2018 for £50.4 million and the purchase of the remaining three assets for £6.9 million is expected in September 2018.

As a result of press speculation regarding a potential sale of a portfolio of industrial assets by Hansteen to Warehouse REIT plc, both companies have issued statements which have confirmed that we are in discussions regarding a property sale but that there is no certainty that a transaction will be concluded and a further announcement will be made as and when appropriate.

Gearing

At 30 June 2018, net debt was £225.2 million (31 December 2017: £225.4 million) and net debt to value was 33.6% (31 December 2017: 27.6%). The table below sets out the calculation of net debt and the net debt to value ratio:

As at 30 June 2018, the Group had total bank facilities of £333.8 million (31 December 2017: £334.1 million), of which £263.8 million were drawn (31 December 2017: £297.1 million). Borrowings are in the same currency as the assets against which they are secured. Cash resources were £38.5 million (31 December 2017: £71.2 million). The weighted average debt maturity, at 30 June 2018, was 3.1 years and the weighted average maturity of hedging was 3.1 years.

Analysis of the Group's bank loan facilities at 30 June 2018 is set out below:

In addition to the bank loan facilities, the Group has a £2.3 million finance lease in place to fund a property in Belgium. As at 30 June 2018, the lease had an unexpired term of 4.5 years and an interest rate implicit in the lease of 2.8%.

In total at 30 June 2018, the Group had borrowings including obligations under finance leases, of £266.1 million (31 December 2017: £299.6 million) 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 30 June 2018, was 2.9% (31 December 2017: 2.7%).

Founder Long Term Incentive Plan ("Founder LTIP")

The Founder LTIP was established at the time of the Company's 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 1 January 2016 to 31 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 six months remaining and therefore the potential awards can only be estimated at this stage and are dependent on the performance in the final six months.

The calculation of performance in the current period has been adjusted to take account of the tender offer of November 2017 and as explained in the return of capital circular and in the Remuneration Committee report contained in the 2017 Annual Report and Accounts, the Founder LTIP calculation will be 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 30 June 2018 is 13.1 million shares to each of the Joint Chief Executives. As the full three-year hurdle has been met by 30 June 2018, the value of the awards will increase by 25% of all additional returns made in the second half of 2018.

The administrative expenses of £22.1 million (H1 2017: £14.8 million) includes a charge of £15.3 million (H1 2017: £7.9 million) related to the potential Founder LTIP awards and associated National Insurance contributions. 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. This £15.3 million charge related to the potential Founder LTIP awards and associated National Insurance contributions is not reversed when calculating EPRA EPS which has led to a loss of 0.5p per share at 30 June 2018. However, the charge is reversed when calculating Adjusted EPS of 3.2p per share at 30 June 2018.

Outlook

We continue to enjoy a beneficial backdrop to our business. Occupational demand is solid with very limited supply in all our regions. Rents and capital values are growing but not yet at a stage where any new meaningful supply is even on the horizon.

The investment case for urban multi-let industrials is stronger than ever and increasingly well understood. As a result, we continue to see new capital looking to invest. A stabilised and diversified portfolio like ours with a robust and growing rent roll provides solid and attractive returns. However, we remain committed to our buy, work and sell business model and expect to continue to realise investments over the next couple of years. As we have shown with the recent acquisition, if we identify opportunities that fit our model we will keenly pursue them, but our expectation is that we will be net sellers for the foreseeable future.

Melvyn Egglenton

Chairman

21 August 2018

Risk management is an important part of the Group's system of internal controls. Senior management and the Board regularly consider the significant risks which it believes are facing the Group, identify and monitor appropriate controls and, if necessary, instigate action to improve those controls. There will always be some risk when undertaking property investments but the control process is aimed at mitigating and minimising these risks where possible.

The key risks identified by the Board for the remaining six months of the year, the steps taken to mitigate them and additional commentary is as follows:

We confirm to the best of our knowledge:

(a) The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

On behalf of the Board

Ian Watson Morgan Jones

Joint Chief Executive Joint Chief Executive

21 August 2018

Copies of this announcement are available on the Company's website at www.hansteen.co.uk and can be requested from the Company's registered office at 1st Floor Pegasus House, 37-43 Sackville Street, London, W1S 3DL

Consolidated income statement

for the six months ended 30 June 2018

Consolidated statement of comprehensive income

for the six months ended 30 June 2018

All components of other comprehensive income and expense will be recycled through the income statement.

Consolidated balance sheet

As at 30 June 2018

Consolidated statement of changes in equity

for the six months ended 30 June 2018

Consolidated cash flow statement

for the six months ended 30 June 2018

Notes to the condensed set of financial statements for the six months ended 30 June 2018

1. General information

Hansteen Holdings PLC is a company which is incorporated in the United Kingdom under 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 activities are those of a property group investing mainly in industrial properties in Continental Europe and the United Kingdom.

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2017 was derived from the statutory accounts for the year ended 31 December 2017, a copy of which has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published annual financial statements for the period ended 31 December 2017 apart from a number of new standards and amendments to IFRSs that became effective for the financial year beginning on 1 January 2018. These new standards and amendments are listed below:

The adoption of these new standards and amendments to IFRSs did not materially impact the condensed set of financial statements for the six months ended 30 June 2018 and no retrospective adjustments were made to the prior year figures. However, with the introduction of IFRS 15, Revenue from Contracts with Customers, additional prior year disclosures have now been included. Further details on this standard are detailed below.

The Group's performance is not subject to seasonal fluctuations.

2. Basis of preparation

The annual financial statements of Hansteen Holdings PLC are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

The following significant accounting policy has been applied from 1 January 2018 to reflect the new standards and amendments. There have been no other changes to the significant accounting policies set out in the latest financial statements of the Group in preparing the condensed set of financial statements.

Gross revenue

IFRS 15, Revenue from Contracts with Customers, is based on the principle that revenue is recognised when control passes to a customer. The majority of the Group's income is from tenant leases and is outside the scope of the new standard. However, certain non-rental income streams, such as service charge income, trading property sales, and external management fees, are within the scope of the standard. In total the Group's 'Gross revenue' includes rental income and non-rental income streams. 'Gross Revenue' includes service charge income which is excluded from Revenue in the consolidated income statement. There has been no financial impact of the new standard to the Group; however, the 'Gross revenue' line has been included within the consolidated income statement. Comparative figures have been included accordingly.

For management purposes, Revenue remains the primary income measure as shown in notes 6 and 10. Revenue from services is recognised at the fair value of the consideration received or receivable and represents amounts receivable for services rendered in the accounting period.

The interim report was approved by the Board on 21 August 2018.

The principal exchange rates used to translate foreign currency denominated amounts are:

Balance sheet: £1 = €1.1308 (31 December 2017: £1 = €1.1270)

Income statement: £1 = €1.1369 (30 June 2017: £1 = €1.1626)

3. Going concern

The Group's principal risks and uncertainties are detailed above. The Directors believe that the Group is well placed to manage its business risks successfully despite the potential impact of the current uncertain economic outlook on the Group's operating cash flows and the possibility of tenancy failures and increased vacancies. After consideration of the Group's forecast cash flows and covenant compliance, including evaluation of the impact of potential reductions in property valuations, rental income and increases in interest rates, the Directors have a reasonable expectation that the Group will continue to have adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing these condensed financial statements.

Information on the Group's performance and its risk management is included in the Interim Statement, including sections on the finance, hedging and outlook of the Group. The Group's debt maturity profile and principal covenants are disclosed in note 15 to these condensed financial statements.

4. Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed. There have been no other material transactions with related parties in the first six months of 2018 and there have been no material changes in the related party transactions described in the Annual Report and Accounts for the year ended 31 December 2017.

5. Revenue

6. Operating segments

The following is an analysis of the Group's revenue and results by reportable segment:

Administrative expenses and net finance costs are managed as central costs and are not allocated to segments.

The following is an analysis of the Group's assets by reportable segment:

7. Net finance costs

8. Tax

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.

9. 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 (currently 20%). £15.2 million of the cash dividend paid in the period ended 30 June 2018 is attributable to PIDs (2017: £15.6 million).

10. 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[2].

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 11.

11. 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 10 the Group uses a number of APMs which are not defined within IFRS. Normalised Income Profit and Normalised Total Profit have been defined in note 10 and adjusted EPS is defined below.

The calculations for net asset value ("NAV") per share are shown in the table below:

12. Discontinued operations

On 20 March 2017, the Group entered into a sale agreement to dispose of the German and Dutch portfolios. The disposal was completed on 16 June 2017 on which date control of the disposal group was passed to the acquirer In accordance with the sales and purchase agreement there was a true-up of the purchase price. This process was completed by the end of October 2017 and has affected the numbers disclosed relating to the discontinued operations reported in the interim financial statements as at 30 June 2017 and 2018.

The results of the discontinued operations, which have been included in the consolidated income statement, were as follows:

13. Disposal of investment in subsidiary

As referred to in note 12, on 16 June 2017 the group disposed of its interests in the German and Dutch portfolio. The net assets of the disposal group at the date of disposal were as follows:

There were no disposals of subsidiaries completed in the six months ended 30 June 2018. The consideration for the sale of the entities in 2017 was settled in cash. The impact of discontinued operations on the Group's results in the current and prior periods and the profit on disposal of discontinued operations are disclosed in note 12.

14. Investment property

In accordance with IFRS 13, the Group's investment property has been assigned a valuation level in the fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, the Group's investment property as at 30 June 2018 is categorised as Level 3.

Investment properties are valued using a capitalisation methodology applying a yield to current and estimated rental income. Yields and rental values are considered to be unobservable inputs and details of the ranges used in each region are as follows:

Information about fair value measurements using unobservable inputs (Level 3)