HSTN.L Regulatory News (HSTN)

16 November 2012

Hansteen Holdings PLC

("Hansteen" or the "Company")

Hansteen Holdings (LSE:HSTN), the UK and Continental property investment company, announces its Interim Management Statement for the period from 1 July to 16 November 2012.

Highlights:

For further information:

Overview

Since the Interim Statement for June 2012 Hansteen's key indicators have all been positive. Cash flow has been strong, with normalised income profit continuing to grow in line with the Board's expectations. Absolute and like-for-like occupancy and rental income on the wholly owned portfolio have all improved. We believe that our business model demonstrates the attractiveness of high-yielding secondary property. Providing that you buy carefully and have the capacity to manage vigorously, our experience continues to be that a large, diversified portfolio of high-yielding industrial property produces a strong and reliable income with the genuine prospect of substantial capital growth when markets recover.

During the period, Hansteen has acquired £26.4million of property with a rent of £2.4 million reflecting a yield of 10.6%. This takes gross acquisitions, since our £147 million fundraising in April 2011, to over £250 million. So far, these acquisitions are performing in-line with, or better than, our projections at the time of acquisition. In addition, we have committed £13.6 million to two substantial pre-let developments in Germany which will, on completion, produce running yields of around 10%, from strong tenants on long leases.

Liquidity in the industrial property investment market is improving slightly, particularly in Germany and we have taken advantage of this to make a further 13 sales, totalling £17.8 million since the half year. This brings sales to date this year to 27 with a total value of £45.6 million. The overall yield on properties sold so far this year is 4.9%. For the year to date all of the sales were made at a surplus to the valuation with one exception. In the UK, we sold one of the larger remaining Kilmartin assets at a £1.2 million deficit to book as we decided that the value and potential returns were diminishing and long term redevelopment value was becoming more uncertain. We therefore chose to realise the capital and to reinvest it in new projects.

Operationally, there has continued to be a high level of activity throughout this period. Hansteen completed 244 new leases and lease renewals between 30 June and 31 October 2012, securing rental income of £5.4 million per annum. The total rent roll, on the wholly-owned portfolio, has increased from £65.7 million, at 30 June 2012, to £66.47 million at 31 October 2012. During the period, adverse exchange rate movements reduced the Sterling equivalent annualised rent roll by £0.3 million, sales reduced the rent roll by £1.18 million per annum and acquisitions added £2.4 million.

In addition to the current operations, we are seeing increasing new business opportunities to invest our capital in each of the areas in which we operate. Hansteen's pan-European asset management structure is proving a valuable resource, both for Hansteen's own portfolio and for the possibilities that it provides to work out distressed portfolios throughout Europe. The Board believes that this infrastructure and evident expertise will provide opportunities for the business in the future.

UK

Across the UK wholly-owned portfolio, like-for-like vacancy was reduced by 7.5% or 6,560 sq m, and, following the acquisition of West Horndon, which included 19,459 of void space, vacancy stands at 99,401 sq m, that is 31.5% of our UK portfolio (30 June 2012: 86,502 sq m, 33%). Like-for-like rent increased, albeit not proportionately to the reduction in vacancy as some vacant properties were sold during the period. The rent roll at 31 October now stands at £10.1 million (30 June 2012: £9.2 million).

Within the HPUT portfolio, vacancy increased by 12,322 sq m to 70,529 sq m or 20.4% (30 June 2012: 59,903 sq m, 16.8%), reducing the HPUT rent roll by £771,000 per annum. The bulk of this vacancy increase can be attributed to the BBC vacating two large units at the Treforest Industrial Estate. We were aware, when we acquired this estate in 2010, that the BBC would be leaving these units when their lease expired and this was reflected in our acquisition business plan.

There continues to be a good level of letting activity in the UK where 47 lettings were concluded up to the end of October, generating £0.6 million per annum of income.

Since the half year, there have been 5 sales, totalling £6.2 million from the UK wholly-owned portfolio and 5 sales for £4.1 million from the HPUT.

Benelux

In the Benelux region, vacancy reduced on a like-for-like basis by 5.4% or 8,388 sq m to 148,249 sq m, that is 32.3% of the Benelux portfolio (30th June 2012 156,637sq m, 34.1%). Likewise, the rent roll increased from €14 million to €14.2 million. We do not believe that this is a reflection of any improvement in the occupational market for industrial property in the Benelux but that our local asset management team has worked hard to generate and convert more enquiries.

Germany

The occupational market in Germany is still strong, although vacancy increased fractionally to 197,863 sq m (14.2%) (30 June 2012: 169,165 sq m, 13.8%), with the like-for-like rent roll similarly shading down. The actual rent roll remained stable at €55.8 million.

There was 88,598 sq m of new lettings and lease renewals to 149 tenants during the period, representing rental income of €4.1 million per annum. Three properties were sold, all profitably, for a total of €11.8 million, with a rent roll of €0.8 million. There was one acquisition comprising three individual units in Uhingen, Henstedt-Ulzburg and Grevenbroich during the period, with a combined rent of €1.17 million per annum and a cost of €10.1 million.

Work commenced on two substantial pre-let developments. In Hanau an existing empty office block is being completely redeveloped in order to provide 8,316 sq m of top quality offices for Heraeus, a substantial German occupier. The project, which will cost approximately €9 million, commenced in February 2012 with completion expected in October 2013. Heraeus has signed a 10 year lease at an initial rent of €0.9 million per annum. This development will enhance the entire Hanau property which comprises 40,764 sq m.

The second development is in Bremen where we are building a 20,000 sq m institutional quality distribution building for the logistics company, LIT. The expected construction cost is €9.5 million and the rent committed on completion, expected in April 2013, is €1.0 million per annum. 

Currency

Hansteen reports its results in sterling although it is exposed to investments in the Euro zone. Between 30th June and 31st October the Euro fell against the sterling by 0.6%. As reported in our Interim Statement, Hansteen has currency hedging in place with €200 million currency hedges representing some two thirds of the current Euro denominated net assets and €70 million of Euro income hedged in four tranches over 2 years.

Outlook

Hansteen's regional asset management offices are enjoying considerable success in retaining existing occupiers, attracting new occupiers and achieving profitable sales. Having our own people on the ground close to the properties, marketing the vacant space directly, is giving us a significant competitive edge.

We are seeing an increasing number of interesting acquisition opportunities in all of our core regions. Acquisition opportunities in this market take a long time to conclude and are often complex but there has recently been a noticeable increase in such discussions in all of our geographic regions and in several situations we are in detailed due diligence albeit this is no guarantee that a deal will be consummated.

Whilst it is possible that valuations of high-yielding secondary industrial property will come under pressure in the short-term, the Board believes that today's values represent fundamental worth. The current value per sq m of the portfolio is around half replacement cost without taking account of any value in the land. Furthermore, the income derived from the portfolio is high, resilient and well diversified. In addition to that income, Hansteen continues to enjoy the twin drivers for growth of further capital capacity and approximately 500,000 sq m of vacant space to let or sell. As a result, the portfolio and the business should continue to generate high and growing returns over the next few years which is expected to manifest itself in a progressive, but prudent, dividend distribution.