22 August 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. Financial highlights from continuing operations IFRS profit increased to 29.2 million (H1 : 13.3 million) Normalised Income Profit (NIP) of 13.6 million (H1 : 15.5 million 1 ) Normalised Total Profit (NTP) of 20.2 million (H1 : 16.8 million 1 ) EPRA NAV per share of 100p after returning 35p of capital (31 December : 131p 1 ) IFRS NAV per share of 106p after returning 35p of capital (31 December : 135p) October interim dividend increased by 4.3% to 2.4p per share (November : 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 IMPT portfolio sold for 116 million generating a profit of 6.1 million over 31 December valuation Saltley Business Park compulsorily purchased (CPO) 9.9 million of other sales generating profits of 0.3 million over 31 December valuation 144.5 million (35p per share) of capital returned to shareholders in May 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 sixmonth 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. 1 Important Explanatory Notes about Alternative Performance Measures used in this Report: 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 int 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 period prepared in accordance with IFRS is set out in note 10. A reconciliation of EPRA measures and adjusted EPS is included within note 11. A calculation of net debt and the net debt to value ratio is shown in the Chairman s interim statement. 1
For more information: Ian Watson/Morgan Jones Hansteen Holdings PLC Tel: 0207 408 7000 Jeremy Carey/Kirsty Allan Tavistock Tel: 0207 920 3150 Email: jeremy.carey@tavistock.co.uk 2
Chairman s interim statement The first six months of 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 increased to 29.2 million (H1 : 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, the sale of IMPT and the Saltley CPO in. Despite the reduced rent roll following these disposals, the business produced Normalised Income Profit (NIP) of 13.6 million (H1 : 15.5 million) and Normalised Total Profit of 20.2 million (H1 : 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. Continuing Operations H1 Discontinued Operations H1 Total Continuing Operations H1 Discontinued Operations H1 H1 H1 Property rental income 26.2-26.2 28.8 36.2 65.0 Direct operating expenses (1.9) 0.1 (1.8) (1.5) (3.0) (4.5) Administrative expenses (6.8) (0.2) (7.0) (6.9) (3.1) (10.0) Net interest payable (3.9) - (3.8) (4.9) (6.7) (11.6) Normalised Income Profit (NIP) 13.6 (0.1) 13.5 15.5 23.4 38.9 Profit on sale of properties 6.4-6.4 0.8 48.0 48.8 Other operating income 0.2-0.2 0.5 0.2 0.7 Normalised Total Profit (NTP) 20.2 (0.1) 20.1 16.8 71.6 88.4 Basic IFRS EPS was 7.1p (H1 : 1.7p) and adjusted EPS was 3.2p (H1 : 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 was 100p after paying a dividend of 3.8p and returning 35p per share to shareholders. The EPRA NAV per share at 31 December, before the 35p capital return was 131p. The calculation of the EPRA NAV per share at 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 : 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. The associated record date is 28 September and the ex-dividend date is 27 September. Total 3
Industrial Multi Property Trust PLC (IMPT) On 27 March, Hansteen completed the sale of the IMPT portfolio for 116 million. After acquiring the portfolio in the first half of, 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. The sale has generated a profit over the 31 December valuation of 6.1 million after fees and expenses. Saltley Compulsory Purchase Order (CPO) On 13 March, 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, 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. 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, is set out below: Number of properties Acres of land Built area (m sq ft) Vacant area Passing rent () Contracted rent () Value () Yield on passing rent Yield on contracted rent UK 257-13.2 9.0% 43.3 46.5 589.9 7.3% 7.9% Belgium & France 8-0.7 11.9% 2.3 2.3 28.4 8.1% 8.1% Total built portfolio 265-13.9 9.2% 45.6 48.8 618.3 7.4% 7.9% UK Land - 469 - - - - 51.9 - - Occupational demand has continued to outstrip supply in. 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. 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. 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 valuation. 4
On 6 August, 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 for 50.4 million and the purchase of the remaining three assets for 6.9 million is expected in September. 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, net debt was 225.2 million (31 December : 225.4 million) and net debt to value was 33.6% (31 December : 27.6%). The table below sets out the calculation of net debt and the net debt to value ratio: 31 Dec Obligations under finance leases 2.3 2.5 Borrowings 263.8 297.1 Capitalised bank loan fees (2.4) (3.0) Cash and cash equivalents (38.5) (71.2) Net debt 225.2 225.4 Carrying value of investment and trading properties 670.2 818.1 Net debt to value ratio 33.6% 27.6% As at, the Group had total bank facilities of 333.8 million (31 December : 334.1 million), of which 263.8 million were drawn (31 December : 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 : 71.2 million). The weighted average debt maturity, at, was 3.1 years and the weighted average maturity of hedging was 3.1 years. Analysis of the Group s bank loan facilities at is set out below: Lender Facility millions Amount undrawn millions Unexpired term years All-ininterest rate Loan to value covenant Interest cover covenant BNP Paribas Fortis 3.8-5.1 1.5% - - Royal Bank of Scotland 330.0 70.0 3.1 2.9% 55% 200% Total facilities 333.8 70.0 3.1 2.9% 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, the lease had an unexpired term of 4.5 years and an interest rate implicit in the lease of 2.8%. In total at, the Group had borrowings including obligations under finance leases, of 266.1 million (31 December : 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, was 2.9% (31 December : 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 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. 5
The calculation of performance in the current period has been adjusted to take account of the tender offer of November and as explained in the return of capital circular and in the Remuneration Committee report contained in the 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. 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. Under this methodology the accrual to is 13.1 million shares to each of the Joint Chief Executives. As the full three-year hurdle has been met by, the value of the awards will increase by 25% of all additional returns made in the second half of. The administrative expenses of 22.1 million (H1 : 14.8 million) includes a charge of 15.3 million (H1 : 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. However, the charge is reversed when calculating Adjusted EPS of 3.2p per share at. 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 6
Principal risks and uncertainties 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: Principal Risk Cause Impact Probability Risk Management Over reliance on key executives. High dependence on Joint Chief Executives. High Medium The Board believes such risk is to some extent mitigated through the appointment and support of high calibre employees and professional advisors. All such appointments are approved by a member of the Board and performance is monitored regularly. Significant tenant failure. Recession and reduced profitability. High Low Whilst there is always a risk that recession or new legislation may affect specific industry types, the Board is satisfied that Hansteen s exposure is mitigated by operating with an extremely diverse tenant base without reliance on any particular tenants or industries. Vacancy rates, arrears and bad debts are monitored on a regional basis with trends investigated to determine any systematic problems with a portfolio or type of tenant. Lack of availability of capital. Information and cyber security breaches resulting in data leakage, financial loss, reputational damage or business disruption. Banks under internal pressure to improve liquidity. Banks considering unutilised loans too expensive. Failure to protect information and information systems from unauthorised access, misuse, disruption, modification or destruction. High Medium The Board acknowledge that there may be occasions when banks are under internal pressures which may conflict with existing financing arrangements and it may prove more difficult to secure the more challenging properties. Detailed due diligence is carried out prior to the purchase of each property. Regular meetings are held with a portfolio of banks to keep them fully appraised of commercial opportunities and alert to any potential issues early on. Hansteen also considers alternative sources of finance to develop its strategy and reduce exposure. High Medium The Board believes this risk to be mitigated to some extent by the Group outsourcing much of its day-to-day processing to reputable third party organisations. Due diligence designed to assess the integrity of third party processes and systems is undertaken by management as part of the tendering and appointment process and is maintained on an on-going basis. Internally, the Group has developed policies and procedures designed to mitigate information and cyber security risk as far as possible, these include: the secure encryption of all payroll and personal data, rigorous use of passwords and firewall defences, externally facilitated staff training programmes, bulletins to raise risk awareness and encourage good practice, development of secure mobile working policies, incident response and disaster recovery procedures and the establishment of anti-malware defences. 7
Poor return on investment and deterioration in operating results. Banking counterparty disruption. Lack of liquidity. Over paying for an acquisition. Prices driven up by increased competition. Reduced number of investment opportunities. Financial difficulties at institutions holding significant deposits. High Low Supply and demand is reviewed continuously through direct information from Hansteen s network of managing agents and managers. Experienced members of management review each acquisition and due diligence is carried out by external parties. The Board is required to approve all acquisitions and disposals over a prescribed amount. Medium Medium The Board believes such risks are reduced by adherence to a Cash and Liquidity Management Policy that sets out how funds can be invested. Cash balances and borrowings are maintained with a portfolio of considered counterparties. The Group Treasurer reviews the cash balances on a daily basis, and where possible, surplus cash is put on interest bearing deposit. 8
Responsibility statement 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 Joint Chief Executive Morgan Jones Joint Chief Executive 21 August 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 9
Consolidated income statement for the six months Continuing operations Note Unaudited Unaudited Gross revenue 1 5 28.5 31.0 Revenue 5 26.2 28.8 Cost of sales (1.9) (1.6) Gross profit 24.3 27.2 Other operating income 0.2 0.5 Administrative expenses (22.1) (14.8) Gains on investment properties 30.5 14.5 Operating profit 32.9 27.4 Finance income 7 0.8 4.8 Finance costs 7 (4.4) (19.6) Profit before tax 29.3 12.6 Tax (charge)/credit 8 (0.1) 0.7 Profit for the period from continuing operations 29.2 13.3 (Loss)/profit for the period from discontinued operations net of tax 12 (0.1) 135.1 Profit for the period 29.1 148.4 Attributable to: Equity holders of the parent 29.1 148.1 Non-controlling interest - 0.3 Profit for the period 29.1 148.4 Earnings per share Basic Continuing operations 11 7.1p 1.7p Discontinued operations 11 0.0p 18.1p 7.1p 19.8p Diluted Continuing operations 11 6.7p 1.7p Discontinued operations 11 0.0p 18.0p 6.7p 19.7p 1 The new financial statement line Gross revenue has been included as a result of implementing the new accounting standard IFRS 15, Revenue from Contracts with Customers. This does not form part of the casting of the consolidated income statement. Comparative figures have been included accordingly. 10
Consolidated statement of comprehensive income for the six months Unaudited Unaudited Profit for the period 29.1 148.4 Other comprehensive expense: Exchange gains arising on translation of foreign operations - 14.5 Exchange differences recycled to the income statement on disposal of - (71.6) discontinued operations Total other comprehensive expense for the period - (57.1) Total comprehensive income for the period 29.1 91.3 Total comprehensive income attributable to: Equity holders of the parent 29.1 91.0 Non-controlling interest - 0.3 29.1 91.3 All components of other comprehensive income and expense will be recycled through the income statement. 11
Consolidated balance sheet As at Unaudited 31 December Audited Note Non-current assets Property, plant and equipment 0.1 0.2 Investment property 14 644.4 694.2 Derivative financial instruments 2.9 2.2 647.4 696.6 Current assets Investment property held for sale 14 15.8 113.9 Trading properties 10.0 10.0 Trade and other receivables 35.2 18.3 Cash and cash equivalents 38.5 71.2 99.5 213.4 Total assets 746.9 910.0 Current liabilities Trade and other payables (31.0) (30.4) Current tax liabilities (8.0) (20.5) Borrowings 15 (0.3) (0.3) Obligations under finance leases (0.2) (0.2) (39.5) (51.4) Non-current liabilities Borrowings 15 (261.1) (293.8) Obligations under finance leases (2.1) (2.3) Provisions (0.8) (0.8) Deferred tax liabilities (4.0) (4.2) (268.0) (301.1) Total liabilities (307.5) (352.5) Net assets 439.4 557.5 Equity Share capital 16 41.3 41.3 Share premium account 11.0 114.5 Other reserves (0.1) (0.1) Capital redemption reserve - 41.3 Translation reserve 4.8 4.8 Retained earnings 382.4 355.7 Equity shareholders funds 439.4 557.5 Non-controlling interest - - Total equity 439.4 557.5 Net asset value per share IFRS net asset value per share 11 106p 135p Diluted net asset value per share 11 99p 130p EPRA net asset value per share 11 100p 131p 12
Consolidated statement of changes in equity for the six months Unaudited Share capital Share premium Translation reserve Capital Other redemption reserves reserve Shares to be issued Retained earnings Noncontrolling interest Total Total Balance at 1 January 74.6 114.5 61.8 (1.9) - - 674.6 923.6 0.6 924.2 Shares issued - - - (0.3) - - - (0.3) - (0.3) Shares to be issued - - - - - 99.5 (0.1) 99.4-99.4 Dividends - - - - - - (27.5) (27.5) (0.4) (27.9) Share-based payments - - - - - - 7.3 7.3-7.3 Own shares acquired - - - (0.8) - - - (0.8) - (0.8) Non-controlling interests acquired - - - - - - - - 1.8 1.8 Profit for the period - - - - - - 148.1 148.1 0.3 148.4 Other comprehensive expense for the period - - (57.1) - - - - (57.1) - (57.1) Balance at 74.6 114.5 4.7 (3.0) - 99.5 802.4 1,092.7 2.3 1,095.0 Shares issued/settlement of convertible bond 8.0 - - - (99.5) 91.5 - - - Cancellation of shares under tender offer (41.3) - - - 41.3 - (583.1) (583.1) - (583.1) Non-controlling interests disposed - - - - - - - - (1.9) (1.9) Capital repaid - - - - - - - - (0.2) (0.2) Dividends - - - - - - (19.0) (19.0) (0.1) (19.1) Share-based payments - - - - - - 10.7 10.7-10.7 Share options exercised - - - 2.8 - - (2.8) - - - Own shares acquired - - - 0.1 - - - 0.1-0.1 Profit for the period - - - - - - 56.0 56.0 (0.1) 55.9 Other comprehensive income for the period - - 0.1 - - - - 0.1-0.1 Balance at 31 December 41.3 114.5 4.8 (0.1) 41.3-355.7 557.5-557.5 Return of capital - (103.5) - - (41.3) - 0.1 (144.7) - (144.7) Dividends - - - - - - (15.7) (15.7) - (15.7) Share-based payments - - - - - - 14.1 14.1-14.1 Share options exercised - - - 0.9 - - (0.9) - - - Own shares acquired - - - (0.9) - - - (0.9) - (0.9) Profit for the period - - - - - - 29.1 29.1-29.1 Balance at 41.3 11.0 4.8 (0.1) - - 382.4 439.4-439.4 13
Consolidated cash flow statement for the six months Unaudited Unaudited Note Net cash inflow from operating activities 17 2.3 11.7 Investing activities Interest received 0.1 0.1 Additions to investment properties (2.0) (30.2) Proceeds from sale of investment properties 162.3 20.7 Investment in subsidiary - (27.3) Proceeds from sale of subsidiaries - 662.4 Net cash generated by investing activities 160.4 625.7 Financing activities Dividends paid (15.7) (27.9) Repayments of obligations under finance leases (0.1) (0.1) New bank loans raised (net of expenses) 74.0 36.4 Bank loans repaid (net of expenses) (107.3) (3.8) Own shares acquired (0.9) (0.8) Return of capital (144.7) - Additions to derivative financial instruments - 0.2 Settlement of derivative financial instruments - (3.5) Net cash (used in)/generated by financing activities (194.7) 0.5 Net (decrease)/increase in cash and cash equivalents (32.0) 637.9 Cash and cash equivalents at beginning of period 71.2 82.5 Effect of foreign exchange rate changes (0.7) 6.5 Cash and cash equivalents at end of period 38.5 726.9 14
Notes to the condensed set of financial statements for the six months 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 31 December was derived from the statutory accounts for the year 31 December, 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 31 December apart from a number of new standards and amendments to IFRSs that became effective for the financial year beginning on 1 January. These new standards and amendments are listed below: IFRS 9 IFRS 15 IFRS 2 (amendments) IAS 40 (amendments) Annual improvement s to IFRS 2014-2016 Cycle IFRS 10 and IAS 28 (amendments) IFRIC 22 IFRIC 23 Financial Instruments Revenue from Contracts with Customers Classification and Measurement of Share-based Payment Transactions Transfers of Investment Property Amendments to IFRS 1 First-time Adoption of IFRS and IFRS 28 Investments in Associates and Joint Ventures Sale or Contribution of Assets between and Investor and its Associate or Joint Venture Foreign Currency Transactions and Advance Consideration Uncertainty over Income Tax Treatments The adoption of these new standards and amendments to IFRSs did not materially impact the condensed set of financial statements for the six months 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 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; 15
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. The principal exchange rates used to translate foreign currency denominated amounts are: Balance sheet: 1 = 1.1308 (31 December : 1 = 1.1270) Income statement: 1 = 1.1369 ( : 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 and there have been no material changes in the related party transactions described in the Annual Report and Accounts for the year 31 December. 5. Revenue Continuing Operations Investment property rental income 26.2 28.8 Revenue 26.2 28.8 Service charge income 2.3 2.2 Gross revenue 1 28.5 31.0 1 The new note to the financial statements has been included as a result of implementing the new accounting standard IFRS 15, Revenue from Contracts with Customers. This note reconciles Gross revenue to Revenue as disclosed on the consolidated income statement. Comparative figures have been included accordingly. 16
6. Operating segments The following is an analysis of the Group's revenue and results by reportable segment: Gross Gross Continuing Operations revenue 1 Revenue Result revenue 1 Revenue Result Belgium 0.5 0.5 0.4 0.5 0.5 0.5 France 0.6 0.6 0.6 0.9 0.9 0.8 UK 27.4 25.1 23.3 29.6 27.4 25.9 28.5 26.2 24.3 31.0 28.8 27.2 Other operating income 0.2 0.5 Administrative expenses (22.1) (14.8) Changes in fair values of investment properties by segment: Belgium (0.1) (1.0) France (0.2) (0.5) UK 24.4 15.1 Total changes in fair values of investment properties 24.1 13.6 Profit on disposal of investment properties 6.4 0.9 Total gains on investment properties 30.5 14.5 Operating profit 32.9 27.4 Net finance costs (3.6) (14.8) Profit before tax 29.3 12.6 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: Investment properties 2 Trading properties Total properties Other assets Total assets Additions to investment properties Non-current assets Belgium 14.3-14.3 1.0 15.3-14.3 France 14.1-14.1 3.8 17.9 0.2 14.1 UK 631.8 10.0 641.8 48.4 690.2 1.8 616.0 660.2 10.0 670.2 53.2 723.4 2.0 644.4 Unallocated assets 23.5 3.0 746.9 647.4 Investment properties 2 Trading properties Total properties Other assets Total assets Additions to investment properties Non-current assets 31 December Belgium 14.5-14.5 1.8 16.3-14.5 France 17.2-17.2 0.6 17.8 0.1 17.2 UK 776.4 10.0 786.4 33.7 820.1 95.8 662.6 808.1 10.0 818.1 36.1 854.2 95.9 694.3 Unallocated assets 55.8 2.3 910.0 696.6 1 This note to the financial statements has been updated as a result of implementing the new accounting standard IFRS 15, Revenue from Contracts with Customers. The note now also details Gross revenue by segment. Comparative figures have been included accordingly. 2 Includes investment properties held for sale. 17
7. Net finance costs Continuing Operations Interest receivable on bank deposits - - Other interest receivable 0.1 0.5 Interest income 0.1 0.5 Interest payable on borrowings (4.0) (5.4) Net interest expense (3.9) (4.9) Change in fair value of interest rate swaps and caps 0.7 0.5 Change in fair value of convertible bond - (12.1) Fees incurred on conversion of convertible bonds - (0.4) Interest incurred on the convertible bond - (1.7) Foreign exchange gains (0.4) 3.8 Net finance costs (3.6) (14.8) Finance income 0.8 4.8 Finance costs (4.4) (19.6) Net finance costs (3.6) (14.8) 8. Tax Continuing Operations UK current tax credit - (0.7) Foreign current tax charge 0.3 0.1 Total current tax charge/(credit) 0.3 (0.6) Deferred tax credit (0.2) (0.1) Tax charge/(credit) 0.1 (0.7) 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 Amounts recognised as distributions to equity holders in the period: Second interim dividend 3.8p (: 3.7p) per share 15.7 27.5 15.7 27.5 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 is attributable to PIDs (: 15.6 million). 18
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 1. NIP and NTP are adjusted measures int 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. Continuing operations Discontinued operations Total Continuing operations Discontinued operations Investment property rental income 26.2-26.2 28.8 36.2 65.0 Direct operating expenses (1.9) 0.1 (1.8) (1.5) (3.0) (4.5) Administrative expenses excluding LTIP charge 2 Total (6.8) (0.2) (7.0) (6.9) (3.1) (10.0) Net interest expense 3 (3.9) - (3.9) (4.9) (6.7) (11.6) Normalised Income Profit 13.6 (0.1) 13.5 15.5 23.4 38.9 Profit on sale of investment properties 6.4-6.4 0.9 0.1 1.0 Loss on sale of trading properties - - - (0.1) - (0.1) Total profit on sale of properties 6.4-6.4 0.8 0.1 0.9 Profit on disposal of discontinued operations - - - - 47.9 47.9 Net other operating income 0.2-0.2 0.5 0.2 0.7 Normalised Total Profit 20.2 (0.1) 20.1 16.8 71.6 88.4 LTIP charge 2 (15.3) - (15.3) (7.9) - (7.9) Fair value gains on investment properties 24.1-24.1 13.6-13.6 Change in fair value of interest rate derivatives 0.7-0.7 0.5 0.7 1.2 Change in fair value of convertible bond - - - (12.1) - (12.1) Fees incurred on conversion of convertible bonds - - - (0.4) - (0.4) Interest incurred on the convertible bond 3 - - - (1.7) - (1.7) Foreign exchange (losses)/gains (0.4) - (0.4) 3.8-3.8 Exchange differences recycled on disposal of discontinued operations - - - - 71.6 71.6 Profit before tax 29.3 (0.1) 29.2 12.6 143.9 156.5 Tax (0.1) - (0.1) 0.7 (8.8) (8.1) Profit for the period 29.2 (0.1) 29.1 13.3 135.1 148.4 1 Diluted EPRA EPS has been adjusted to exclude the impact of the Founder LTIP charge on the earnings per share in the current year. The prior year measures have also been restated to make the comparatives useful. 2 Continuing administrative expenses of 6.8 million ( : 6.9 million) plus the LTIP charge of 15.3 million ( : 7.9 million) reconcile to the administrative expenses of 22.1 million ( : 14.8 million) reported in the consolidated income statement. 3 Net interest expense in NIP, as set out in note 7, excludes the interest on the convertible bond as this expense is not recurring. 19
11. Earnings per share and net asset value per share The European Public Real Estate Association ( EPRA ) has issued recomm 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. Shares Per share Shares Per share Continuing Operations m pence m pence Normalised Income Profit (see note 10) 13.6 412.9 3.3 15.5 746.2 2.1 Normalised Total Profit (see note 10) 20.2 412.9 4.9 16.8 746.2 2.2 Basic EPS 29.2 412.9 7.1 13.0 746.2 1.7 Adjustments: Dilutive shares relating to the profit share scheme 3.4 3.0 Dilutive shares relating to the Founder LTIP 20.5 - Diluted EPS 29.2 436.8 6.7 13.0 749.2 1.7 Basic EPS 29.2 412.9 7.1 13.0 746.2 1.7 Adjustments: Revaluation gains on investment properties (24.1) (13.6) Profit on the sale of investment properties (6.4) (0.9) Loss/(profit) on sale of trading properties - 0.1 Change in fair value of derivatives (0.7) (0.5) Change in fair value of convertible bond - 9.2 Fees incurred on conversion of convertible bonds - 0.4 Deferred tax on the above items - (0.3) EPRA EPS (2.0) 412.9 (0.5) 7.4 746.2 1.0 Adjustments: Dilutive shares relating to the profit share scheme 3.4 3.0 Dilutive shares relating to the Founder LTIP 20.5 - Diluted EPRA EPS 1 (2.0) 436.8 (0.5) 7.4 749.2 1.0 Founder LTIP Charge 15.3 (20.5) 7.9 - Adjusted EPS 13.3 416.3 3.2 15.3 749.2 2.0 1 Diluted EPRA EPS has been adjusted to exclude the impact of the Founder LTIP charge on the earnings per share in the current year. The prior year measures have also been restated to make the comparatives useful. 20
Shares Per share Shares Per share Discontinued Operations m pence m pence Normalised Income Profit (see note 10) (0.1) 412.9 0.0 23.4 746.2 3.1 Normalised Total Profit (see note 10) (0.1) 412.9 0.0 71.6 746.2 9.6 Basic EPS (0.1) 412.9 0.0 135.1 746.2 18.1 Adjustments: Dilutive shares relating to the profit share scheme 3.4 3.0 Dilutive shares relating to the Founder LTIP 20.5 - Diluted EPS (0.1) 436.8 0.0 135.1 749.2 18.0 Basic EPS (0.1) 412.9 0.0 135.1 746.2 18.1 Adjustments: Revaluation gains on investment properties - - Profit on the sale of investment properties - (0.1) Profit after tax on disposal of discontinued operations - (113.2) Change in fair value of derivatives - (0.7) Deferred tax on the above items - (10.4) EPRA EPS (0.1) 412.9 0.0 10.7 746.2 1.4 Adjustments: Dilutive shares relating to the profit share scheme 3.4 3.0 Dilutive shares relating to the Founder LTIP 20.5 - Diluted EPRA EPS 1 (0.1) 436.8 0.0 10.7 749.2 1.4 Founder LTIP Charge (20.5) - - Adjusted EPS (0.1) 416.3 0.0 10.7 749.2 1.4 The calculations for net asset value ( NAV ) per share are shown in the table below: Shares m 31 December Per share Pence Shares m Per share pence Basic NAV 439.4 412.8 106 557.5 412.8 135 Unexercised share options 2 29.6-15.5 Diluted NAV 439.4 442.4 99 557.5 428.3 130 Fair value of interest rate derivatives (2.9) (2.2) Deferred tax 3.8 4.1 EPRA NAV 440.3 442.4 100 559.4 428.3 131 1 Diluted EPRA EPS has been adjusted to exclude the impact of the Founder LTIP charge on the earnings per share in the current year. The prior year measures have also been restated to make the comparatives useful. 2 The 29.6 million shares (: 15.5 million shares) contains 26.1 million shares (: 13.0 million shares) in relation to the Founder LTIP awards and 3.5 million shares (: 2.5 million) in relation to the Performance Share Plan awards. 21
12. Discontinued operations On 20 March, the Group entered into a sale agreement to dispose of the German and Dutch portfolios. The disposal was completed on 16 June 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 and has affected the numbers disclosed relating to the discontinued operations reported in the interim financial statements as at and. The results of the discontinued operations, which have been included in the consolidated income statement, were as follows: Unaudited Unaudited Revenue - 36.2 Cost of sales 0.1 (3.0) Gross profit 0.1 33.2 Other operating income - 0.2 Administrative expenses (0.2) (3.1) Gains on investment properties - 0.1 Operating (loss)/profit (0.1) 30.4 Finance income - 0.8 Finance costs - (6.8) (Loss)/profit before tax (0.1) 24.4 Tax - (2.5) (Loss)/profit after tax (0.1) 21.9 Profit on disposal of discontinued operations - 119.5 Tax attributable to profit on disposal - (6.3) Profit after tax on disposal of discontinued operations - 113.2 (Loss)/profit for the period from discontinued operations (0.1) 135.1 13. Disposal of investment in subsidiary As referred to in note 12, on 16 June 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: Investment property 1,067.7 Trade and other receivables 17.3 Cash and cash equivalents 8.2 Trade and other payables (20.7) Current tax liabilities (3.0) Borrowings (414.4) Deferred tax liability (33.2) 621.9 Profit on disposal of discontinued operations 121.4 Net assets disposed 621.9 Cash proceeds net of transaction costs 671.1 49.2 Release of translation reserve 72.2 Profit on disposal of discontinued operations 121.4 Net cash inflow arising on disposal: Consideration received in cash and cash equivalents 671.1 Less: cash and cash equivalents disposed of (8.2) 662.9 22
There were no disposals of subsidiaries completed in the six months. The consideration for the sale of the entities in 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 31 December Continuing operations Continuing operations Discontinued operations Investment property at start of period 694.2 698.5 1,019.0 Additions property purchases - 91.2 13.0 capital expenditure 2.0 4.7 15.4 Lease incentives 0.2 1.4 (0.1) Letting costs 0.1 0.1 0.2 Revaluations 24.1 62.0 - Disposals (60.3) (50.9) (1,067.7) Transfer to investment property held for sale (15.8) (113.9) - Exchange adjustment (0.1) 1.1 20.2 644.4 694.2 - Investment property held for sale 31 December Continuing operations Continuing operations Discontinued operations Investment property at start of period 113.9 3.0 7.4 Disposals (113.9) (3.0) (7.4) Transfer from investment property 15.8 113.9-15.8 113.9 - 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 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) Fair value at Rent per sq m Yield Min Max Min Max % % Belgium 14.3 29.2 109.2 4.5 9.8 France 14.1 30.6 30.6 8.4 8.3 UK Industrial properties 616.7 7.0 150.2 0.9 15.6 UK - Offices 15.1 34.6 625.7 4.5 17.6 Total 660.2 23