HSTN.L Regulatory News (HSTN)

RNS Number : 8088R

Hansteen Holdings plc

31 August 2010

 

31 August 2010

 

Hansteen Holdings PLC

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

Half Year Results

 

Hansteen Holdings PLC (LSE: HSTN), the investor in continental European and UK real estate, announces its half year results for the six months ended 30 June 2010.

Financial Highlights

·; Normalised profits increased by 11% to 9.7 million (HY09: £8.7 million)*

·; Profit before tax £7.8 million (HY09: Loss £9.7 million)

·; Portfolio valued at £721.9 million (HY09: £422.8 million)

·; 30 June 2010 diluted EPRA Net Asset Value of 80 pence per share (FY09: 84 pence per share)

·; 30 June 2010 IFRS Net Asset Value of 78 pence per share (FY09: 84 pence per share)

·; Annualised rent roll of £58.2 million (June 2009: £36.7 million)

·; Portfolio yield of 8.06% as at 30 June 2010

·; Committed to paying two dividends per year

·; Proposed paying interim dividend of 1.4 pence per share on 25 November 2010

 

Operational Highlights

·; Acquisition of 9.3 million sq ft German industrial portfolio for approximately €330.0 million

·; Acquisition of a 1.2 million sq ft multi-sector Kilmartin portfolio for £80.4 million

·; HPUT purchased £18.5 million of properties in four transactions

·; Exchanged contracts in August 2010 to acquire 12 properties from Kilmartin joint ventures for £13.5 million

 

 

James Hambro, Hansteen Chairman, commented: "The Group started the year in a strong position with over £500 million of available fire power to take advantage of the downturn and used a large part of this to acquire the German HBI and Kilmartin portfolios. In addition, the HPUT purchased £18.5 million of properties in four transactions.

 

Given the current economic outlook we expect opportunities for capital growth to be limited and will focus on generating a high income surplus from our assets while continuing to acquire assets capable of significant capital growth once the markets recover."

 

 

For more information:

Morgan Jones/Ian Watson   Hansteen Holdings PLC Tel: 020 7408 7000

Capel Irwin / Nicholas Marren / Simon Brown KBC Peel Hunt Ltd. Tel: 020 7418 8900

Jeremy Carey   Tavistock Communications Tel: 020 7920 3150

 

Notes to Editors:

Hansteen Holdings PLC is a REIT formed by Morgan Jones and Ian Watson, the founders and former directors of Ashtenne Holdings PLC.

 

Hansteen was floated to invest in high yielding industrial properties with high yields, low financing costs and opportunity for value improvement through asset management in continental Europe and the UK.

 

Hansteen is listed on the Official List, trading under the symbol HSTN. It moved up to the Official List, from AIM, in October 2009, having converted to a REIT at the same time.

 

*Normalised profit comprises pre-tax profit before gains and losses on investment properties, sale of subsidiaries, sale of available for sale investments, forward currency contracts and foreign exchange and changes in fair value of interest rate derivatives (Note 7).

 

 

 

CHAIRMAN'S INTERIM STATEMENT

 

During 2009, the Board of Hansteen positioned the Group for further growth. The business raised significant new capital, extended its banking facilities with HBOS for a further five years, moved up to the Official List and became a Real Estate Investment Trust (REIT). During the first half of 2010, the Group has used that platform to take advantage of the downturn in the property market and to grow the business materially. This was principally achieved through two significant acquisitions.

 

On 8 April 2010, Hansteen completed the acquisition of the HBI portfolio, a 9.3 million sq ft (0.86 million sqm) German industrial portfolio for an effective acquisition cost of approximately €330 million, showing an annualised rent of €30.3 million, financed by approximately €70.0 million from existing cash resources and the balance of approximately €260.0 million of non-recourse debt borrowed on very beneficial terms. The Board believes that it has bought the portfolio at a cyclical low point and that the assets have substantial asset management potential.

 

On 16 April 2010, the Group exchanged contracts to acquire the Kilmartin portfolio, a 1.2 million sq ft (0.1 million sqm) multi-sector portfolio of 61 freehold and leasehold assets, for £80.4 million, funded from the Group's existing cash resources. Three freehold industrial properties from the portfolio were acquired by the Hansteen UK Industrial Property Unit Trust (HPUT) for £9.5 million, with the rest of the portfolio completed by Hansteen for £70.9 million.

 

In the current economic climate, the prospects for capital growth in the near term are likely to be limited. Our focus, therefore, is on generating a high income surplus and acquiring assets capable of significant capital growth once the market recovers. Following the two acquisitions, Hansteen now has a portfolio which exhibits these characteristics, whilst also retaining capacity for further acquisitions if the opportunities arise.

 

Results

 

In the first half of 2010, the normalised / recurring profits were £9.7 million compared to £8.7 million in the first half of 2009. The second half of 2010 should see increased profits as the two major acquisitions made by the Group were only concluded during the second quarter and therefore have had a limited impact on the first half results.

 

Under IFRS accounting principles, Hansteen made a £7.8 million profit before tax compared to a £9.7 million loss before tax during the same period last year. These results were achieved despite an adverse movement in the Sterling/Euro exchange rate of 8.5% over the period.

 

As a result of these improving profits, the Board proposes to pay an interim dividend of 1.4 pence per share on 25 November 2010. The associated record date is 29 October 2010 and the ex-dividend date is Wednesday 27 October 2010. In the absence of unforeseen circumstances, it is our intention to operate a prudently progressive dividend policy in future reflecting the strong cash flow generated by the business. 

 

Overall, the value of Hansteen's property portfolio increased by 0.5% during the period with the valuation movement in Continental Europe broadly reflecting changes in occupancy rather than yield shift and both the 2010 acquisitions showing uplifts confirming that the purchases had been made at a good price. However, the adverse currency movements referred to above, together with the dividend paid in April this year, mean that the Net Asset Value per share measured on a diluted EPRA basis as at 30 June 2010 fell by 5.0% to 80 pence per share compared to 84 pence as at 31 December 2009 and on an IFRS basis fell by 7.0% to 78 pence compared to 84 pence per share as at 31 December 2009.

 

Property Portfolio

 

The business model that Hansteen pursues is to assemble a robust, high yielding portfolio with reasonably high levels of vacancies, undeveloped land or other opportunities to improve returns. The current market is ideal for this and the recent acquisitions are good examples of portfolios from which Hansteen's intensive management approach will be able to extract additional value over time against the background of a strong income surplus.

 

Excluding the properties within HPUT, at the half year Hansteen owned 20.1 million sq ft of property (1.87 million sqm) (30 June 2009: 10.2 million sq ft / 0.95 million sqm), in the UK and Continental Europe, with a value of £721.8 million/ €881.8 million (June 2009: £422.8 million/ €496.3 million) and an annualised rent roll of £58.2 million/ €71.1 million (June 2009: £36.7 million/ €43.1 million). This reflects a yield of 8.06% compared to Hansteen's average cost of borrowing of 3.1%. The current level of vacancies within the portfolio is 25%.

 

 The Group's rental revenues are extremely well diversified, coming from 1,800 tenants spread throughout five countries. Furthermore, the portfolio has 5.1 million sq ft (0.47 million sqm) of lettable vacant space with a potential rent roll of £19 million per annum. Within the portfolio there is also around 600 acres (242.8 hectares) of undeveloped land.

 

A key criterion which the Group applies to acquisitions is that the capital cost of properties purchased should be materially below replacement cost. For example, the acquisition of the HBI portfolio in April this year was at a capital value of €384 per sqm compared to an insurance rebuilding cost of €798 per sqm.

 

Set out below is a schedule of property on a country-by-country basis:

 

	No.  Properties	Built Area	Vacant Area	Passing Rent		Value		Yield (%)
		sqm	( %)	Euros €m	Sterling £m	Euros €m	Sterling £m
UK	53	66,199	57	4.3	3.5	82.8	67.8	5.15
Germany	86	1,305,411	22	49.3	40.4	563.3	461.1	8.75
Netherlands	33	369,056	29	12.4	10.1	175.1	143.3	7.06
Belgium	13	49,973	23	3.3	2.7	40.5	33.1	8.05
France	4	79,042	22	1.8	1.5	20.2	16.5	9.06
Total  Wholly Owned	189	1,869,681	25	71.1	58.2	881.9	721.9	8.06
HPUT	7	26,991	47	1.1	0.9	22.6	18.5	4.76

 

 

2010 Acquisitions

 

 As referred to above, the HBI purchase in Germany and the Kilmartin acquisition in the UK took place partway through the second quarter and therefore had only a limited impact on the first half results; we believe these are both excellent deals that will produce strong returns in the coming years.

 

The HBI portfolio in Germany was acquired with an initial yield of 9.2% on a portfolio value of €330.0 million. This compares to borrowings of €260.0 million at a gross cost of 3.0% per annum. Since our ownership of the portfolio, the contracted annualised rent roll has increased from €30.3 million per annum to €30.7 million per annum. Vacancy level has fallen from 24.0% (0.2 million sqm) to 21.2% (0.18 million sqm). At 30 June 2010, the valuation had increased to €336.6 million, €6.4 million uplift from the initial acquisition. The high yield on capital invested and capital growth means that the acquisition is proving positive and should contribute significantly to the second half years' income. The strategy for HBI is to maximise tenant retention and, over time, to let the empty space. Additionally the Group will carry out opportunistic sales where appropriate.

 

 The Kilmartin portfolio purchase is also exceeding our expectations. A portfolio such as this requires enormous focus and energy to extract value. The plan on acquisition was to manage the existing let properties for income whilst focusing on the vacant properties and to make sales where profits can be achieved.

 

So far, excluding the properties transferred into the HPUT, eleven properties have been sold for a total of £17.75 million, in addition contracts have been exchanged on three properties totalling £9.75 million, and a further five properties totalling £8.3 million are in legals to be sold. All nineteen properties sold, or expected to be sold are at prices above Hansteen's total acquisition cost. Four of the properties sold were completely, or substantially, vacant and one was an undeveloped piece of land.

 

Following the acquisition of a 12% interest in Kenmore European Industrial Fund (KEIF) in November last year, Hansteen announced it was considering an offer for KEIF. However, as the Group became close to finalising the HBI acquisition, the Board decided not to pursue this opportunity. In mid April, Hansteen subsequently disposed of the entirety of its interest in KEIF at a small premium to the original cost of the shares.

 

Hansteen UK Industrial Property Unit Trust

 

HPUT purchased £18.5 million of multi let industrial properties in four transactions in the six months to 30 June 2010. The largest acquisition being the completion of three properties for £9.5 million from the Administrators of Kilmartin.

 

Since March, the investment market for secondary industrial property has been changing; there is less interest from institutional investors resulting in yields in this sector moving outwards. With 90% of the HPUT's capital undeployed, the fund is expecting to take advantage of this correction in pricing as yields on secondary industrial properties return to levels which reflect the present economic climate. Since the half year, the HPUT has acquired a further two industrial properties for £13.5 million. 

 

Notwithstanding these acquisitions, the HPUT retains significant headroom to acquire additional properties as such opportunities arise.

 

Finance and Hedging

 

Of the £430.2 million (€525.5 million) of borrowings which Hansteen currently has, £144.9 million (€177 million) is capped at an average rate of 5.3% and £252.1 million (€308.0 million) is fixed at an average rate of 2.6%. The fact that Hansteen has hedged in this way means that it has benefited to a large extent from the very low interest rates currently prevailing (the average borrowing rate at 30 June 2010 was 3.1%). Borrowings are in the same currency as the assets secured.

 

Approximately 70% of Hansteen's Net Assets are Euro denominated with the result that the Sterling value of its net assets varies with the movement in the exchange rate. The Board has extensively researched and discussed an appropriate policy for managing its Euro currency exposure. In relation to Net Asset Value, the Board has concluded that it would implement a policy which protects the Group against extreme movements in the Euro/Sterling exchange rate. Therefore, the Group has entered into the option contract noted below. In relation to income, the Group will dynamically manage both its Euro revenues and cash balances to ensure that it always has adequate Sterling resources to meet dividends.

 

On 6 July this year, the Group announced that it had entered into a three year hedge which provides downside protection should the Euro fall significantly against Sterling (move beyond €1.42 to the £) whilst at the same time ensuring that the Group will fully benefit if the Euro appreciates in value.

 

Outlook

 

Whilst the markets in all the countries in which Hansteen operates continue to be very tough, the Board believes that occupancy throughout the portfolio has broadly stabilised. In Germany, in particular, there are signs of increasing occupier confidence as already reflected in the improvement in the occupancy of the HBI portfolio since it was purchased.

 

 The Board believes that there will be more chances in the UK to buy properties from banks and administrators at prices which represent good value and which will benefit from Hansteen's management expertise. We continue to review acquisition opportunities and have headroom to take advantage of further acquisitions if these arise. Since the period end, in addition to the properties purchased by the HPUT, Hansteen has exchanged contracts to purchase 12 further properties which were joint ventures between Kilmartin (now in administration) and third parties for a sum of £13.5 million as announced on the 24 August 2010. Furthermore, Hansteen has entered into an agreement to asset manage a further three Kilmartin joint venture properties on the basis that it will receive a management fee and an incentive fee in the event of a successful conclusion.

 

The Board believes that the prospects for the business in the light of its current portfolio are exciting and in particular that the high yielding nature of the portfolio coupled with the opportunity to extract further income and value from the vacant properties should mean that the Group's earnings per share are amongst the highest in the UK REIT sector. The Group is well positioned with secure debt at extremely competitive rates and a portfolio of assets acquired at competitive values. The strong cash flow and progressive dividend policy, coupled with the Group's proven ability to access interesting and profitable opportunities, should provide a positive scenario for our shareholders.

 

James Hambro

Chairman

31 August 2010

 

 

HANSTEEN HOLDINGS PLC

 

Condensed consolidated income statement

for the six months ended 30 June 2010

 

Year ended 31 December  2009 £'000 Audited		Note	Six months ended 30 June 2010 £'000 Unaudited	Six months ended 30 June 2009 £'000 Unaudited
	Continuing operations
38,885	Revenue	4	23,090	19,809
(5,540)	Cost of sales		(4,565)	(2,979)
33,345	Gross profit		18,525	16,830
(6,979)	Administrative expenses		(4,694)	(3,358)
(216)	Share of results of associates		98	-
26,150	Operating profit before gains/(losses) on investment properties and before profit on sale of subsidiaries		13,929	13,472
(32,512)	Gains/(losses) on investment properties		2,842	(16,434)
24	Profit on sale of subsidiaries		-	-
(6,338)	Operating profit/(loss)		16,771	(2,962)
4,532	(Losses)/gains on currency derivatives		(684)	5,713
1,049	Finance income		384	477
(11,822)	Finance costs		(4,606)	(5,242)
(1,017)	Changes in fair value of interest rate derivatives		(4,227)	(1,189)
-	Profit on sale of available for sale investment		1,184	-
(7,704)	Foreign exchange losses		(977)	(6,486)
(21,300)	Profit/(loss) before tax		7,845	(9,689)
9,054	Tax (charge)/credit	5	(602)	9,094
(12,246)	Profit/(loss) for the period		7,243	(595)
	Attributable to:
(12,096)	Owners of the parent		7,229	(444)
(150)	Non-controlling interests		14	(151)
(12,246)	Profit/(loss) for the period		7,243	(595)
	Profit/(loss) per share
(3.9)p	Basic*	8	1.6p	(0.2)p
(3.9)p	Diluted*	8	1.6p	(0.2)p

* Comparative Earnings per share have been restated following the issue of new shares at a discount to fair value during 2009 (see note 8).

 

 

 

 

Condensed consolidated statement of comprehensive income

for the six months ended 30 June 2010

 

Year ended 31 December  2009 £'000 Audited		Six months ended 30 June 2010 £'000 Unaudited	Six months ended 30 June 2009 £'000 Unaudited
(12,246)	Profit/(loss) for the period	7,243	(595)
	Other comprehensive income/(expense):
(15,755)	Exchange differences arising on translation of foreign operations	(19,109)	(23,300)
(10)	Translation differences recognised on sale of subsidiaries	-	-
761	Movement in fair value of available for sale investment	12	-
-	Movement in fair value of available for sale investment recycled to profit and loss on disposal	(870)	-
(244)	Income tax relating to components of other comprehensive income recycled to profit and loss on disposal	244	-
(15,248)	Total other comprehensive expense for the period (net of income tax)	(19,723)	(23,300)
(27,494)	Total comprehensive expense for the period	(12,480)	(23,895)
	Total comprehensive expense attributable to:
(27,279)	Owners of the parent	(12,445)	(23,653)
(215)	Non-controlling interests	(35)	(242)
(27,494)		(12,480)	(23,895)

 

Condensed consolidated balance sheet

as at 30 June 2010

 

31 December 2009 £'000 Audited		Note	30 June 2010 £'000 Unaudited	30 June 2009 £'000 Unaudited
	Non-current assets
2,004	Goodwill		2,004	2,241
55	Property, plant and equipment		235	27
417,974	Investment property		699,502	419,991
14,792	Investment in associates		29,882	-
9,511	Other investments		2,765	-
1,167	Deferred tax asset		1,720	-
163	Derivative financial instruments		4,171	208
445,666			740,279	422,467
	Current assets
2,996	Trading properties		22,386	2,844
11,339	Trade and other receivables		29,179	9,231
100,970	Cash and cash equivalents		26,291	62,705
53	Derivative financial instruments		-	-
115,358			77,856	74,780
561,024	Total assets		818,135	497,247
	Current liabilities
(9,244)	Trade and other payables		(16,204)	(8,858)
(4,906)	Current tax liabilities		(105)	(752)
(1,608)	Borrowings		(2,558)	(4,203)
(342)	Obligations under finance leases		(315)	(328)
(385)	Derivative financial instruments		(1,716)	(49,635)
(16,485)			(20,898)	(63,776)
	Non-current liabilities
(150,546)	Borrowings		(427,303)	(235,235)
(3,586)	Obligations under finance leases		(3,231)	(3,513)
(4,735)	Derivative financial instruments		(7,112)	(4,559)
(5,490)	Deferred tax liabilities		(6,239)	(6,389)
(164,357)			(443,885)	(249,696)
(180,842)	Total liabilities		(464,783)	(313,472)
380,182	Net assets		353,352	183,775
	Equity
45,365	Share capital		45,365	17,843
112,731	Share premium account		112,731	114,312
44,783	Translation reserves		25,723	37,274
176,692	Retained earnings		168,808	13,762
379,571	Equity shareholders' funds		352,627	183,191
611	Non-controlling interests		725	584
380,182	Total equity		353,352	183,775
83.6p	Diluted net asset value per share	8	77.7p	97.4p
84.3p	Diluted EPRA net asset value per share	8	79.9p	102.4p

 

 

 

 

Condensed consolidated statement of changes in equity

for the six months ended 30 June 2010

 

Six month period to 30 June 2010 Unaudited
	Share capital £'000	Share premium £'000	Translation reserves £'000	Retained earnings £'000	Total £'000	Non-controlling interest £'000	Total £'000
Balance at 1 January 2010	45,365	112,731	44,783	176,692	379,571	611	380,182
Changes in equity for the six months ended 30 June 2010:
Dividends	-	-	-	(14,517)	(14,517)	-	(14,517)
Share-based payments	-	-	-	18	18	-	18
Total comprehensive income/(expense) for the period	-	-	(19,060)	6,615	(12,445)	(35)	(12,480)
Capital invested by non-controlling interests	-	-	-	-	-	149	149
Balance at 30 June 2010	45,365	112,731	25,723	168,808	352,627	725	353,352
Six month period to 30 June 2009 Unaudited
	Share capital £'000	Share premium £'000	Translation reserves £'000	Retained earnings £'000	Total £'000	Non-controlling interest £'000	Total £'000
Balance at 1 January 2009	17,843	114,312	60,483	19,907	212,545	819	213,364
Changes in equity for the six months ended 30 June 2009:
Dividends	-	-	-	(5,710)	(5,710)	-	(5,710)
Share-based payments	-	-	-	9	9	-	9
Total comprehensive expense for the period	-	-	(23,209)	(444)	(23,653)	(242)	(23,895)
Capital invested by non-controlling interests	-	-	-	-	-	7	7
Balance at 30 June 2009	17,843	114,312	37,274	13,762	183,191	584	183,775

 

Condensed consolidated cash flow statement

for the six months ended 30 June 2010

 

Year ended 31 December  2009 £'000 Audited		Note	Six months ended 30 June 2010 £'000 Unaudited	Six months ended 30 June 2009 £'000 Unaudited
13,679	Net cash (outflow)/inflow from operating activities	9	(29,671)	7,956
1,048	Interest received		384	477
(46)	Additions to property, plant and equipment		(210)	(5)
(8,284)	Additions to investment properties		(45,753)	(7,673)
10,292	Proceeds from sale of investment properties		4,751	5,686
-	Net cash inflow on acquisition of subsidiaries		8,678	-
10	Disposal of subsidiaries		-	-
(15,008)	Acquisition of associates		(14,992)	-
(3,447)	Acquisition of other investments		-	-
-	Proceeds from sale of available for sale investment		7,034	-
(15,435)	Net cash used in investing activities		(40,108)	(1,515)
(5,710)	Dividends paid		(14,517)	(5,710)
194,686	Proceeds from issue of shares at a premium net of expenses		-	-
(155)	Repayments of obligations under finance leases		(77)	(77)
-	New bank loans raised (net of expenses)		87,336	-
(109,851)	Bank loans repaid (net of expenses)		(40,518)	(9,182)
(609)	Additions to derivative financial instruments		(4,817)	-
-	Settlement of derivative financial instruments		(30,752)	-
(49,628)	Settlement of forward currency contract		-	-
7	Capital contribution from non-controlling interests		149	7
28,740	Net cash used in financing activities		(3,196)	(14,962)
26,984	Net decrease in cash and cash equivalents		(72,975)	(8,521)
80,240	Cash and cash equivalents at beginning of period		100,970	80,240
(6,254)	Effect of foreign exchange rate changes		(1,704)	(9,014)
100,970	Cash and cash equivalents at end of period		26,291	62,705

 

 

 

 

 

HANSTEEN HOLDINGS PLC

 

Notes to the condensed set of financial statements for the six months ended 30 June 2010

1. General information

Hansteen Holdings PLC is incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 6th Floor, Clarendon House, 12 Clifford Street, London, W1S 2LL.

 

The Group's principal activities are those of a property group investing mainly in industrial properties in Continental Europe and the United Kingdom.

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 financial information for the year ended 31 December 2009 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. This information was derived from the statutory accounts for the year ended 31 December 2009, a copy of which has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not include a reference to any matters to which the auditors 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.

 

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements, with the exception that the Group has adopted IFRS 3 (2008) 'Business Combinations', IAS 27 (2008) 'Consolidated and Separate Financial Statements' and IAS 28 (2008) 'Investments in Associates'.

 

For business combinations completed prior to 1 January 2010, the following accounting policy was applied:

 

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 'Non-Current Assets Held for Sale and Discontinued Operations', which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

 

For business combinations completed after 1 January 2010, the following policy has been adopted:

 

The acquisition of subsidiaries is accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (2008) are recognised at their fair value at the acquisition date except:

- Deferred tax assets or liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 'Income Taxes' and IAS 19 'Employee Benefits' respectively;

- Liabilities or equity instruments related to the replacement by the Group of an acquiree's share-based payment awards are measured in accordance with IFRS 2 'Share-based Payment'; and

- Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' are measured in accordance with that Standard.

 

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets and liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year.

Non-controlling interests in the acquiree are measured at the non-controlling shareholder's proportionate share of the acquiree's identifiable net assets.

Goodwill arising in a business combination is recognised as an asset and initially measured at cost, being the excess of the sum of the consideration transferred and the amount of any non-controlling interest in the acquiree over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the sum of the consideration transferred and the amount of any non-controlling interest in the acquiree, the excess is recognised immediately in profit or loss as a bargain purchase gain.

 

The interim report was approved by the Board on 24 August 2010.

 

3. Going concern

The Group's principal risks and uncertainties are detailed in its Report and Financial Statements for the year ended 31 December 2009. 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 the impact of potential further 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.

 

 

4. Operating segments

Segment revenues and results

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

 

	Six month period ended 30 June 2010 Unaudited			Six month period ended 30 June 2009 Unaudited
	Revenue £'000	Result £'000		Revenue £'000		Result £'000
Belgium	1,476	1,347		1,722		1,565
France	867	818		1,053		1,027
Germany	14,178	10,557		9,437		7,208
Netherlands	5,405	4,811		7,597		7,062
UK	1,164	992		-		(32)
	23,090	18,525		19,809		16,830
Administrative expenses*		(4,694)				(3,358)
Share of results of associate		98				-
Operating profit before gains/(losses) on investment properties		13,929				13,472
Gains/(losses) on investment properties by segment:
Belgium	(1,932)			(3,063)
France	(403)			(1,349)
Germany	5,606			(7,519)
Netherlands	(4,862)			(5,182)
UK	3,925			-
Total gains/(losses) on investment properties		2,334			(17,113)
Profit on disposal of investment properties		508			679
		2,842			(16,434)
Operating profit/(loss)		16,771			(2,962)
Profit on sale of available for sale investment		1,184			-
Net finance costs		(10,110)			(6,727)
Profit/(loss) before tax		7,845			(9,689)

 

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

 

 

Segment assets

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

 

		30 June 2010 Unaudited
			Investment properties £'000	Trading properties £'000	Total properties £'000	Other assets £'000	Total assets £'000	Additions to investment properties £'000	Non-current assets £'000
Belgium			33,127	-	33,127	5,206	38,333	62	35,131
France			16,525	-	16,525	1,574	18,099	-	16,525
Germany			461,139	-	461,139	21,230	482,369	290,281	461,287
Netherlands			143,328	-	143,328	5,454	148,782	216	144,526
UK			45,383	22,386	67,769	14,330	82,099	44,505	45,383
			699,502	22,386	721,888	47,794	769,682	335,064	702,852
Corporate and unallocated assets							48,453		37,427
Entity total							818,135		740,279

 

 

		31 December 2009 Audited
		Investment properties £'000	Trading properties £'000	Total properties £'000	Other assets £'000	Total assets £'000	Additions to investment properties £'000	Non-current assets £'000
Belgium		37,893	-	37,893	5,158	43,051	6	39,898
France		18,354	-	18,354	852	19,206	-	18,354
Germany		201,189	-	201,189	10,201	211,390	7,850	201,264
Netherlands		160,538	-	160,538	8,585	169,123	429	161,369
UK		-	2,996	2,996	92	3,088	-	-
		417,974	2,996	420,970	24,888	445,858	8,285	420,885
Corporate and unallocated assets						115,166		24,781
Entity total						561,024		445,666

 

 

 

5. Tax on profit on ordinary activities

Year ended 31 December  2009 £'000 Audited		Six months ended 30 June 2010 £'000 Unaudited	Six months ended 30 June 2009 £'000 Unaudited
3,918	UK current tax	149	7,835
517	Foreign current tax	(421)	(541)
4,435	Total current tax	(272)	7,294
4,619	Deferred tax	(330)	1,800
9,054	Tax (charge)/credit	(602)	9,094

 

6. Dividends

Group and Company	2010 £'000	2009 £'000
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended 31 December 2009 of 3.2p (2008: 3.2p) per share	14,517	5,710

 

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%). 0.34p of the cash dividend paid in the period ended 30 June 2010 is attributable to PIDs (2009: £nil).

 

7. Normalised Profit

 

In addition to the IFRS measures, the Group has presented a Normalised Profit measure as a supplementary measure of its performance. Normalised Profit is stated before gains and losses on investment properties, sale of subsidiaries, sale of available for sale investments, forward currency contracts and foreign exchange and changes in fair value of interest rate derivatives, as follows:

Year ended 31 December  2009 £'000 Audited		Six months ended 30 June 2010 £'000 Unaudited	Six months ended 30 June  2009 £'000 Unaudited
38,885	Revenue	23,090	19,809
(5,540)	Cost of sales	(4,565)	(2,979)
(7,195)	Administrative expenses*	(4,596)	(3,358)
1,049	Finance income	384	477
(11,822)	Finance costs	(4,606)	(5,242)
15,377	Normalised Profit	9,707	8,707

 

 

* including share of results of associates

 

 

8. Earnings per share and net asset value per share

 

The calculations for earnings per share, based on the weighted average number of shares, are shown in the table below.

The European Public Real Estate Association ('EPRA') has issued recommended bases for the calculation of certain per share information and these are included in the following tables. Following the Placing and Open Offer in July 2009, where shares were issued at a discount to fair value, the comparative Earnings per share and Net Asset Value ('NAV') per share calculations have been restated. This restatement has not impacted the balance sheet.

31 December 2009 Audited				30 June 2010 Unaudited			30 June 2009 Unaudited
Earnings £'000	Weighted average number of shares 000's	Earnings per share pence		Earnings £'000	Weighted average number of shares 000's	Earnings per share pence	Earnings £'000	Weighted average number of shares 000's*	Earnings per share pence
(12,096)	312,610	(3.9)	Basic EPS	7,229	453,648	1.6	(444)	187,899	(0.2)
-	38	-	Dilutive share options	-	52	-	-	-	-
(12,096)	312,648	(3.9)	Diluted EPS	7,229	453,700	1.6	(444)	187,899	(0.2)
			Adjustments:
33,345			Revaluation (gains)/losses on investment properties	(2,334)			17,113
(833)			Profit on the sale of investment properties	(508)			(679)
(24)			Profit on the sale of subsidiary undertakings	-			-
143			Tax on the sale of investment properties	72			185
-			HBI acquisition costs	1,785			-
-			Gain on HBI acquisition	(2,038)			-
(3,515)			Change in fair value of financial instruments	4,911			(4,524)
(2,131)			Deferred tax on the above items	557			4,727
14,889		4.8	Diluted EPRA EPS	9,674		2.1	16,378		8.7

 

 

 

The calculations for Net Asset Value per share are shown in the table below:

 

31 December 2009 Audited				30 June 2010 Unaudited			30 June 2009 Unaudited
Equity share-holders' funds £'000	Number of shares 000's	Net asset value per share pence		Equity share-holders' funds £'000	Number of shares 000's	Net asset value per share pence	Equity share- holders' funds £'000	Number of shares 000's*	Net asset value per share pence
379,571	453,648	83.7	Basic NAV	352,627	453,648	77.7	183,191	187,899	97.5
603	850	n/a	Unexercised share options	603	850	n/a	604	850	n/a
380,174	454,498	83.6	Diluted NAV	353,230	454,498	77.7	183,795	188,749	97.4
			Adjustments:
(2,004)			Goodwill	(2,004)			(2,241)
1,017			Fair value of interest rate derivatives	8,619			4,983
4,035			Deferred tax	3,200			5,841
383,222		84.3	Diluted EPRA NAV	363,045		79.9	192,378		102.4

* As restated

 

 

9. Notes to the cash flow statement

 

Year ended 31 December  2009 £'000 Audited			Six months ended 30 June 2010 £'000 Unaudited	Six months ended 30 June 2009 £'000 Unaudited
(12,246)	Profit/(loss) for the period		7,243	(595)
	Adjustments for:
25	Share-based employee remuneration		18	9
23	Depreciation of property, plant and equipment		31	10
227	Impairment of goodwill		-	-
-	Gain on bargain purchase		(2,038)
216	Share of (profits)/losses of associate		(98)	-
32,512	(Gains)/losses on investment properties		(2,842)	16,434
(24)	Gain on sale of subsidiaries		-	-
(4,532)	Losses/(gains) on forward currency contracts and currency options		684	(5,713)
16,582	Net finance costs/(income)		8,819	12,564
(9,054)	Tax charge/(credit)		602	(9,094)
23,729	Operating cash inflows before movements in working capital		12,419	13,615
(246)	Increase in trading properties		(19,390)	(94)
632	(Increase)/decrease in receivables		(15,030)	290
10	Increase in payables		1,108	62
24,125	Cash generated (used in)/generated by operations		(20,893)	13,873
(1,998)	Income taxes paid		(4,293)	(1,164)
(8,448)	Interest paid		(4,485)	(4,753)
13,679	Net cash (outflow)/inflow from operating activities		(29,671)	7,956

 

 

 

10. Acquisition of subsidiaries

On 8 April 2010, for a cash consideration of €1, a subsidiary of the Company acquired 94.9% of the issued share capital of HBI Holding S.à r.l and its subsidiaries (together the 'HBI Group'). On the same date, for a cash consideration of €1, a joint venture between the Company and Stichting Interhan, acquired 5.1% of the HBI Group, thereby giving the Group control of the HBI Group, with an effective economic benefit of 99.74%. The HBI Group is a portfolio of 34 companies incorporated and registered in Luxembourg, four companies incorporated and registered in Germany and a Partnership established in Germany. In addition, for a cash consideration of €1, the Group acquired 100% of the issued share capital of HBI Delta GP S.à r.l, a company incorporated a registered in Luxembourg, obtaining control of HBI Delta GP S.à r.l. 34 of these companies are engaged in property investment and management in Germany. The remaining companies are non-trading. On 12 May 2010, HBI Holding S.à r.l and Hansteen Delta GP S.à r.l were renamed Hansteen Germany Holdings S.à r.l and Hansteen Delta GP S.à r.l, respectively. The HBI Group was acquired as it is highly compatible with the Group's existing German portfolio and intensive management approach. This transaction has been accounted for in accordance with IFRS 3 (2008). The acquisition of this German portfolio, is a compelling opportunity for the Group and is considered to be highly compatible with the Group's existing German portfolio. Hansteen's management approach will be used to create significant added value to the acquired portfolio.

 

	Provisional book value £'000	Provisional fair value adjustments £'000	Provisional fair value £'000
Net assets acquired:
Investment properties	289,321	(10)	289,311
Trade and other receivables	3,368	-	3,368
Cash and cash equivalents	8,678	-	8,678
Trade and other payables	(5,016)	-	(5,016)
Current tax liabilities	(161)	-	(161)
Bank loans	(262,835)	-	(262,835)
Derivative financial instruments	(30,752)	-	(30,752)
Deferred tax liabilities	(549)	-	(549)
Non-controlling interest	(6)	-	(6)
	2,048	(10)	2,038
Total consideration			-
Satisfied by:
Cash			-
Net cash inflow arising on acquisition
Cash consideration			-
Cash and cash equivalents acquired			8,678
			8,678

The amounts in the table above are provisional and will be finalised before the year end.

 

The net assets acquired exceed the consideration by £2,038,000. Under IFRS 3 (2008) this is considered to be a gain on a bargain purchase and is recognised in profit and loss immediately.

 

Costs directly attributable to the acquisition of £1,785,000 have been expensed and are included within Administrative expenses in the income statement in accordance with IFRS 3 (2008).

 

Immediately after acquisition, the Group injected an amount of €75,631,000 into the HBI Group, in the form of €70,000,000 capital and €5,631,000 intercompany loans. €40,000,000 of this was used to reduce the bank loan acquired to €260,000,000, €35,100,000 was used to close out the interest rate swap acquired and €261,300 was used to acquire two new interest rate caps.

 

The HBI Group contributed £5,804,000 revenue and £3,513,000 to the Group's profit before tax for the period between the date of acquisition and the balance sheet date.

 

If the acquisition of the subsidiaries had been completed on the first day of the financial year, Group revenues for the year would have been £30,428,000.

 

11. Events after the balance sheet date

 

The Finance Act 2010, which provides for a reduction in the main rate of corporation tax from 28% to 27% effective from 1 April 2011, was substantively enacted on 21 July. As it was not substantively enacted at the balance sheet date, the rate reduction is not yet reflected in these financial statements in accordance with International Accounting Standard 10 'Events After the Reporting Period', as it is a non-adjusting event occurring after the reporting period. The impact of the rate reduction, which will be reflected in the next reporting period, is not material. The Government has also indicated that it intends to enact future reductions in the main tax rate of 1% each year down to 24% by 1 April 2014.

The future 1% main tax rate reductions are expected to have a similar impact on our financial statements as outlined above, however the actual impact will be dependent on our deferred tax position at that time.

 

There are no other post balance sheet events to report.

12. The Interim Report and condensed set of financial statements will be posted to shareholders and will be available from the Company's Registered Office at 6th Floor, Clarendon House, 12 Clifford Street, London W1S 2LL.

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