Final Results

Hansteen Holdings PLC

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

Hansteen (LSE: HSTN), the investor in UK industrial property, announces its full-year results for the year ended 31 December 2018.

Financial Highlights from continuing operations

· EPRA NAV per share of 102.7p after return of capital of 35p during 2018 (31 December 2017: 130.6p)1

· IFRS NAV per share of 103.3p (31 December 2017: 135.1p)

· Full year dividend of 6.2p (FY 2017: 6.1p)

· Normalised Income Profit (NIP) of £25.8 million (FY 2017: £31.3 million). NIP per share of 6.3p (FY 2017: 4.3p)1 

· Normalised Total Profit (NTP) of £45.8 million (FY 2017: £37.5 million). NTP per share of 11.1p (FY 2017: 5.2p)1

· IFRS profit of £59.5 million (FY 2017: £71.1 million) following £294.5 million of sales in 2018. Basic EPS of 14.4p (FY 2017: 9.8p)

· Net debt to property value ratio of 29.7% (31 December 2017: 27.6%)1

Operational Highlights

· Like-for-like property valuation increase of £39.6 million or 6.5%

· 874 new leases / renewals at 10.4% ahead of ERV at 31 December 2017

· IMPT portfolio sold for £116.0 million generating a profit of £6.1 million over 31 December 2017 valuation

· Saltley Business Park compulsorily purchased (CPO). Total claim agreed for £60.0 million

· £118.5 million of other sales generating profits of £9.2 million or 8.6% over 31 December 2017 valuation

· 34 assets purchased for £56.9 million reflecting a net initial yield of more than 9.2%

· £144.5 million (35p per share) of capital returned to shareholders in May 2018 following the £578.1 million of capital returned by way of a tender offer in November 2017

Melvyn Egglenton, Chairman of Hansteen, commented: "2018 was another very successful year for Hansteen with income growth, profit on sales and growth in NAV per share when adjusted for the material return of capital during the year."

"The Hansteen management platform is, we believe, among the best in the sector and is a significant asset to the Group. As a result of the quantity of property sold in the last few years, the size of the management platform has decreased, accordingly, we have reduced the cost of running the business in-line with the reduced capital base and the reduced property portfolio."

"The team is well placed to manage the portfolio going forward. We believe that our diverse portfolio and management focus presents a rare combination in today's property sector that can achieve both income and capital growth."

Morgan Jones and Ian Watson, Joint Chief Executives, added: "We still believe that it is right to crystallise much of the value that we have created before the cycle turns and indeed, to a large extent, we have done so. However, over the last year, two matters have become clearer: firstly, investing in urban multi-let industrial property is likely to outperform most other property investments, both in terms of total return and earnings over the next few years; and secondly, that our UK management platform is unrivalled for its presence (six regional offices), experience (many of the team have been specialising in regional urban multi-let industrial properties since the early 2000s) and proven performance (year after year our team has grown occupancy, rent roll and value). We genuinely believe our team is 'best in class' for what we do."

"Accordingly, in the near term our emphasis will be to manage our portfolio for income and value growth, rather than sales. We will continue to seek acquisitions that fit our approach and sell opportunistically but do not envisage that we will be significant net sellers until we have a clearer view on this current property cycle."

Presentation for Analysts

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

Dial in details are as follows:

Direct DDI (s) for Participant Connection: 0800 3589473

Participant Pin Code: 20335032#

Webex details are as follows:

Audience URL: https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID=eff89530b26d1ec27655f2de52564dcfa 

Audience password: Event password: 301279695

For further details, please e mail Jeremy Carey at [email protected] or Charlotte Dale at [email protected]

For more information:

[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 intended to show the underlying earnings of the Group before fair value movements and other non-recurring or otherwise non-cash items. Fair value movements include those in relation to investment property, financial assets and financial liabilities. Non-recurring or otherwise non-cash items include foreign exchange gains or losses and the Founder LTIP charge. A reconciliation of NIP and NTP to the Profit for the year prepared in accordance with IFRS is set out in note 4. A reconciliation of EPRA measures and adjusted EPS is included within note 9. A calculation of net debt and the net debt to value ratio is shown in the Financial Review.

Glossary of terms shown at the end of this report.

Hansteen Holdings PLC

Preliminary Announcement

CHAIRMAN'S REVIEW

I am pleased to present Hansteen's results and strategic report for the year ended 31 December 2018.

2018 was another very successful year for Hansteen with income growth, profit on sales and growth in NAV per share when adjusted for the material return of capital during the year. This has led to a strong set of financial results.

RESULTS

During 2018, the Group disposed of £294.5 million and acquired £56.9 million of property which enabled us to make a return of capital on 11 May 2018 of £144.5 million, equivalent to 35p per share. This follows the £1.12 billion sale of the European business in 2017 and the return of capital that followed. As a result of these capital returns, some of the reported profit measures have fallen compared to the previous year but show an increase on a per share basis.

NIP from continuing operations was £25.8 million (FY 2017: £31.3 million) and the profits on the substantial amount of property sales has increased our NTP from continuing operations by 22.1% to £45.8 million (FY 2017: £37.5 million). On a per share basis, NIP was 6.3p (FY 2017: 4.3p) and NTP was 11.1p (FY 2017: 5.2p). IFRS profit was £59.5 million (FY 2017: £71.1 million).

The Group's IFRS NAV per share at 31 December 2018 was 103.3p (31 December 2017: 135.1p) and the EPRA NAV was 102.7p (31 December 2017: 130.6p).

DIVIDEND

In May 2018, the Group returned £144.5 million or 35p per share of capital to shareholders (approximately 25% of the NAV) and despite this substantial reduction in the Group's capital base, the Board has decided to maintain the second ongoing dividend for 2018 at 3.8p per share. This decision reflects the strong financial performance of the Group during 2018 with realised profits of £45.8 million, as well as the impact of the REIT requirements as our portfolio has become more UK focussed. The total dividend in relation to 2018 will be 6.2p per share (2017: 6.1p). The second ongoing dividend of 3.8p will be paid as a Property Income Distribution (PID) on 17 May 2019. The associated record date is 5 April 2019 and the ex-dividend date is 4 April 2019.

Going forward, the Board expects to continue with a prudent progressive dividend policy adjusted for the 25% reduction in the capital base.

LONG-TERM PERFORMANCE

2018 was the sixth consecutive year that Hansteen has produced double digit total returns to shareholders (measured by EPRA NAV growth, dividends and other returns to shareholders). When the Group was listed in 2005, a Founder Long-term Incentive Plan (Founder LTIP) for the two Joint Chief Executives was approved by the shareholders, since when only one award has been made, relating to the three-year period ended 31 December 2015. However, as a result of the high returns made in the last three years, adding value of approximately £400 million or 50% return on capital, the Joint Chief Executives have received an award, under the Founder LTIP, of 11.6 million shares each after the deduction of PAYE and National Insurance Contributions. Although in the near term each of the Joint Chief Executives intends to sell some shares, following those sales their ownership will be more than treble their previous shareholdings. The Board believes that those substantial shareholdings provide a powerful motivation for the Joint Chief Executives going forward and align their interests directly with those of the shareholders. Full details of both the plan and the award are set out in the Financial Review.

It has already been agreed that the Founder LTIP will be terminated following this award. Furthermore, in recognition of the reduced portfolio size and the need to right size business costs, the Joint Chief Executives are reducing their remuneration packages by approximately half, compared to 2018 excluding the Founder LTIP. Other members of the Board have also agreed to zero uplifts in their remuneration for 2019. Full details are set out in the Report of the Remuneration Committee within the Annual Report.

BOARD CHANGES

As previously announced, Margaret Young retired as a Non‐Executive Director and Chair of the Remuneration Committee of the Company. Margaret has been a Non‐Executive Director of the Company since October 2015 and departed the Board on 31 December 2018. On behalf of the Board, I should like to thank Margaret for her significant contribution to our deliberations generally and especially as Chair of the Remuneration Committee. The Board has benefitted from her considerable corporate and governance experience during her time with us. David Rough has replaced Margaret as Chair of the Remuneration Committee. Details of our approach to replacing the Non-Executive Directors is set out in more detail in the Reports of the Nomination and Remuneration Committees within the Annual Report.

BREXIT AND THE WAREHOUSE PROPERTY INVESTMENT MARKET

The current period contains a high degree of uncertainty with questions over the general economy and the property investment market whilst the issue of the EU exit process and its aftermath remain unresolved. The uncertain outcome of the negotiations makes it difficult to assess the future impact on Hansteen but the Board believes that the fundamentals of occupational supply and demand will continue to be strong despite the short-term economic and political volatility. To date we have not seen any negative impact on our tenants' take-up of space with each of our regional offices reporting good levels of enquiries and good levels of new lettings so far in 2019. The impact of e-commerce has benefitted the industrial and logistics property sector, partly at the expense of retail. There is unlikely to be any material new development of multi-let light industrial property unless rents and capital values rise further and our diverse portfolio of tenants (both by number and by sector) brings resilience to our income stream and the prospect of further rental growth.

We have a strong balance sheet with a prudent level of gearing (net debt to property value ratio of 29.7%), with a main bank facility that does not expire until July 2021. The Group has a cash balance of £55.1 million and further funds that can be drawn under this existing debt facility. The Board therefore considers the Group to have adequate available resources to moderate the impact of any future macro-economic challenges while being able to take advantage of any investment opportunities that may arise.

OUTLOOK

The Hansteen management platform is, we believe, among the best in the sector and is a significant asset to the Group. As a result of the quantity of property sold in the last few years, the size of the management platform has decreased, accordingly, we have reduced the cost of running the business in-line with the reduced capital base and the reduced property portfolio.

The team is well placed to manage the portfolio going forward. We believe that our diverse portfolio and management focus presents a rare combination in today's property sector that can achieve both income and capital growth.

Melvyn Egglenton

Chairman

24 March 2019

Joint Chief Executives' REVIEW

During 2017 and 2018 the business experienced a tremendous amount of change with significantly more than half of the property portfolio sold in several transactions and substantially more than half of the Company's capital returned to shareholders.

From 2008 to 2013 the property market was distressed and, in this period, Hansteen raised capital to acquire properties. In the period 2013 to 2018, we made high returns in excess of 18% per annum2 much of which has been crystallised. We believe that we are at a turning point for the business.

Many of our shareholders are aware that in May 2005 we sold Ashtenne, the UK urban multi-let industrial specialist company which we founded in 1989 and floated on the main market of the Stock Exchange in 1997. Our stewardship of that business was successful, with our shareholders receiving consistently high returns through the life of the business. Following the sale of Ashtenne, we felt that there was an opportunity to repeat the Ashtenne business model in Continental Europe, where yields were still much higher than in the UK, occupancy and rents were low and there was limited competition to buy urban multi-let industrial property. Accordingly, at the IPO of Hansteen on AIM in November 2005, we said that we would assemble a portfolio of urban, multi-let industrial properties in Continental Europe with a view to provide investors with consistently high and realised returns, manage the properties for income and capital growth and at some stage realise the value that had been added. We also said that we would extend our geography back into the UK when we believed real value had returned.

From the time of the IPO, we were able to identify high yielding opportunities enabling us to pay a strong, progressive and covered dividend from the end of the first full year of trading. Our task was complicated by the financial crisis, however Hansteen was one of only a very limited number of AIM listed property companies that survived. There were even established main market quoted property companies who were only saved by value destroying, rescue rights issues. But, we were able to position the business to take advantage of the excellent opportunities arising from the crisis. As a result, since the IPO, the weighted average return on capital has been approximately 13% per annum2.

During 2018, we purchased £56.9 million of property that we believed would be value enhancing, worked our assets to increase the rent roll and capital values, sold £294.5 million of property at a good profit and returned £144.5 million of capital to our shareholders. We set out the full details of these transactions in this report as we summarise what has been another very successful year for the business.

2 Measured by EPRA NAV growth plus dividends assuming that investors reinvested any capital returns from Hansteen back in to Hansteen at the EPRA NAV post the return of capital and invested pro-rata in all the fund raises.

FINANCIAL RESULTS FOR 2018

We are pleased to present another set of strong financial results with high realised profits and growth in NAV per share when adjusted for the material return of capital during the year. Comparisons with 2017 figures require adjustments to reflect the reduced capital base following the return of capital to shareholders.

The Group's IFRS profit from continuing operations was £59.5 million compared with £71.1 million in 2017. Basic IFRS EPS was 14.4p (FY 2017: 9.8p) and adjusted EPS was 6.3p (FY 2017: 4.2p). Adjusted EPS is based on EPRA EPS adjusted for the fair value of the Founder LTIP charge as shown in note 9. The Board believes that our normalised profit measures of NIP and NTP (Normalised Income Profit and Normalised Total Profit) 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 and Discontinued Operations.

As the Group were net sellers of £237.6 million of property during 2018, the substantial sales have reduced our NIP from continuing operations to £25.8 million (FY 2017: £31.3 million) but the profits on those sales has increased our NTP from continuing operations by 22.1% to £45.8 million (FY 2017: £37.5 million).

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 31 December 2018 was 102.7p (31 December 2017: 130.6p), after the payment of 6.2p per share of dividends and a 35p per share return of capital during the year. The movement in EPRA NAV from 31 December 2017 can be summarised as follows:

http://www.rns-pdf.londonstockexchange.com/rns/7988T_1-2019-3-22.pdf

The Group uses Alternative Performance Measures (APMs) which are not defined within IFRS. The Board use these measures to assess the underlying realised profits from the business and as such these measures should be considered alongside the IFRS measures. Definitions of these APMs are shown in the glossary to this report. The reconciliation of NIP and NTP to the IFRS profit before tax is contained in note 4 to the financial statements. Basic NAV per share is reconciled to EPRA NAV per share in note 9 to the financial statements.

PROPERTY PORTFOLIO

Our portfolio is focussed more on smaller, urban distribution and light industrial warehouses rather than big box logistics properties. The average size of 4,800 sq ft across our 2,700 UK units generally means that our occupiers are local trades undertaking a wide variety of activities as opposed to larger national or international businesses. Our portfolio is geographically well spread throughout the UK with the majority of our properties being located north of the Watford Gap services.

The built portfolio has a yield of 7.6% on the passing rent (31 December 2017: 7.5%), 8.2% on the contracted rent (31 December 2017: 8.0%) and 9.2% on the valuer's ERV. Including the 453.7 acres of undeveloped land, the total portfolio has a yield on the passing rent of 7.1% and a yield on the contracted rent of 7.7%. The summary analysis of the built portfolio, at 31 December 2018, is set out below:

Property valuation, acquisitions and disposals

A key part of the Hansteen business model is to selectively acquire properties that we believe have a tangible opportunity to add value. This is achieved through the methodical and detailed assessment of investment opportunities and despite the increased competition for our type of properties, the last few years have shown that our opportunistic and often management intensive approach to acquisitions has produced significant capital growth. In August 2018, we managed to secure the purchase of 34 assets located throughout the UK for £56.9 million (including costs). The 1.4 million sq ft of space had a passing rent of £5.3 million per annum at acquisition which reflects a high yield of over 9.2%. We have already sold eight of these assets at a £2.7 million or 11.4% increase over the gross acquisition cost and have initiated various other asset management plans across the remaining properties.

In addition to the disposal of the IMPT portfolio and the Saltley CPO (explained in further detail below), the sustained investor appetite for UK multi-let light industrial property allowed for the disposal of a further 43 assets during the year for a combined consideration of £118.5 million. Purchasers ranged from individual owner occupiers to listed property companies and the sales generated profits of £9.2 million or 8.6% above the 31 December 2017 valuation. The Group used part of the proceeds to repay £55.0 million of debt on the revolving credit facility with Royal Bank of Scotland, in December 2018.

The like-for-like value of the portfolio has increased by £39.6 million or 6.5% since 31 December 2017. The Midlands and the North West showed the largest increases of c.14% with the North East, Yorkshire and the South West and Wales showing increases of c.6%. Values in Scotland remained broadly static and values in Belgium and France went down €1.9 million. Despite the overall valuation increase, the built portfolio has a higher yield at 31 December 2018 of 7.6% than the 7.5% yield at 31 December 2017.

Saltley Compulsory Purchase Order (CPO)

On 13 March 2018, the Secretary of State for Transport acquired Saltley Business Park, Birmingham by way of a CPO under the High Speed Rail (London - West Midlands) Act 2017, to enable construction of the first phase of the HS2 route. As part of the CPO process, High Speed Two (HS2) Limited, acting on behalf of the Secretary of State, made a down payment of £37 million in March 2018 and a further £19 million was received in March 2019. Hansteen are due a further £4 million in due course bringing the total for the settlement to £60 million. Hansteen purchased the property in 2010 for £24.4 million and the value of the property at 31 December 2017 was £55.2 million which, after fees and expenses, has produced a profit of £4.2 million.

Industrial Multi Property Trust PLC (IMPT)

On 27 March 2018, Hansteen completed the sale of the IMPT portfolio for £116.0 million. After acquiring the portfolio in the first half of 2017 for £88.8 million, our UK asset management team was able to increase the occupancy, rent roll and ERV and the sale generated a profit, after costs, of £6.1 million over the 31 December 2017 valuation of £109.7 million.

Rental growth

All of our UK regions are experiencing levels of rental growth and as our portfolio has a relatively short weighted average unexpired lease term (WAULT) of approximately three years, any growth in market rents can be captured relatively quickly. Rent growth can be measured in a variety of different ways and we set out some statistics below to illustrate the excellent performance of our in-house team which has, yet again, excelled during 2018, securing 874 new lettings and lease renewals generating £17.2 million per annum of contracted rent.

The statistics are calculated on a like-for-like basis for the properties that were held at 31 December 2018 with the corresponding 2017 numbers being for the same properties adjusted for any acquisitions during 2018.

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 diluted the returns from the business, the Board considered that returning the £144.5 million of capital to the shareholders by means of a reduction and return of capital was in the best interests of all shareholders. Each shareholder received 35p per share in cash on or around the 11 May 2018.

OUTLOOK

We have a reputation as a cyclical investor reflected in our business model of 'buy, work and sell'. We have acquired over £2.2 billion of property since the IPO, mainly during the early part of the current cycle and profitably sold approximately £2 billion of property, largely in the last few years. Having raised £718 million of capital from our shareholders (including the convertible bond), we have returned £723 million and our remaining business has a market capitalisation of c.£400 million, with a property portfolio valued at £650 million. During that period, we have distributed £349 million through strongly progressive and covered dividends.

Since we sold our German and Dutch properties, many of our shareholders have assumed that we would keep selling to draw the business to a conclusion and indeed we were again net sellers during 2018. We had an approach from Warehouse REIT PLC to purchase a major part of our business although it ultimately did not proceed. This process has focused our minds on the future of the business.

We still believe that it is right to crystallise much of the value that we have created before the cycle turns and indeed, to a large extent, we have done so. However, over the last year, two matters have become clearer: firstly, investing in urban multi-let industrial property is likely to outperform most other property investments, both in terms of total return and earnings over the next few years; and secondly, that our UK management platform is unrivalled for its presence (six regional offices), experience (many of the team have been specialising in regional urban multi-let industrial properties since the early 2000s) and proven performance (year after year our team has grown occupancy, rent roll and value). We genuinely believe our team is 'best in class' for what we do.

Accordingly, in the near term our emphasis will be to manage our portfolio for income and value growth, rather than sales. We will continue to seek acquisitions that fit our approach and sell opportunistically but we do not envisage that we will be significant net sellers until we have a clearer view on this current property cycle. Our judgement today reflects what we said in our full year report in March 2016 - "our reading of the current cycle continues to be that of a long, grinding, corrugated stretch of low interest rates and low returns which should play to the strengths of our business". On the one hand, there is considerable uncertainty and risk at present, both politically, domestically and globally, which is clouding the property market. On the other hand, there is an unprecedented amount of capital being allocated to property globally. If in the future, that uncertainty clears, and the market moves ahead, we may recommence significant selling. If, however, the market falls back, we will look to acquire properties and grow the business once again. We have meaningful fire power for acquisitions if opportunities present themselves.

The strength of our position is that in the meantime we have an enormously diverse portfolio producing a solid and growing income. In the regions in which we specialise, supply of properties is not growing and will not do so while rents and values remain well below those required for development. On the other hand, tenant demand is strong, driven by a plethora of local economy businesses together with the positive effect on demand of the continuing growth of e-commerce. We are proud of our consistent and progressive dividend record since IPO and expect this to continue. However, in times such as this, the key strength for a property company is the ability to attract and retain tenants, grow rents and identify and exploit opportunities to add value. We are grateful to our team which has proven consistently, over the years to be able to do all of these things.

Ian Watson Morgan Jones

Joint Chief Executives

24 March 2019

financial review

RESULTS

As discussed in the Chairman's Review and the Joint Chief Executives' Review, the Group's IFRS profit from continuing operations was £59.5 million compared with £71.1 million in 2017. Basic IFRS EPS was 14.4p (FY 2017: 9.8p) and adjusted EPS was 6.3p (FY 2017: 4.2p). Adjusted EPS is based on EPRA EPS adjusted for the fair value of the Founder LTIP charge as shown in note 9.

NET ASSET VALUE

The net assets attributable to equity shareholders at 31 December 2018 were £470.1 million (2017: £557.5 million). The movement in IFRS net assets is summarised in the table below:

GEARING

At 31 December 2018, net debt was £193.9 million (31 December 2017: £225.4 million) and net debt to value was 29.7% (31 December 2017: 27.6%). The table below sets out the calculation of net debt and the net debt to value ratio:

As at 31 December 2018, the Group had total bank facilities of £333.5 million (31 December 2017: £334.1 million), of which £245.5 million were drawn (31 December 2017: £297.1 million). Borrowings are in the same currency as the assets against which they are secured. Cash resources at the year-end were £55.1 million (31 December 2017: £71.2 million). The weighted average debt maturity, at 31 December 2018, was 2.6 years and the weighted average maturity of hedging was 2.6 years.

Analysis of the Group's bank loan facilities at 31 December 2018 is set out below:

In addition to the bank loan facilities, the Group has a £2.2 million finance lease in place to fund a property in Belgium. As at 31 December 2018, the lease had an unexpired term of four years and an interest rate implicit in the lease of 1.7%.

Including the obligations under the Belgium finance lease, the Group had total borrowings of £247.7 million (31 December 2017: £299.6 million) of which £150.0 million was swapped at an average rate of 0.53% and £50.0 million was capped at an average rate of 0.75%. The average all-in borrowing rate for the Group, at 31 December 2018, was 3.1% (31 December 2017: 2.7%).

FOUNDER LONG-TERM INCENTIVE PLAN (Founder LTIP)

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

The calculation of performance in this final period has been materially affected by the tender offer of November 2017 and as explained in the return of capital circular and the 2017 Annual Report and Accounts, the Founder LTIP calculation has been adjusted and measured over two periods, being pre and post the return of capital date of 14 November 2017.

During the first part of the final performance period (1 January 2016 - 14 November 2017), the Company benefitted from the sale of the German and Dutch businesses, achieving a total return of 32.1% or 16.0% per annum compound over the period, which exceeds the 10% per annum compound growth target by 14.0p per share, equivalent to £115.8 million. During the second part of the final performance period (15 November 2017 - 31 December 2018), the Company benefitted from further profitable property disposals and valuation growth, achieving a total return of 19.1% or 16.7% per annum compound over the period, which exceeds the 10% per annum compound growth target by 10.1p per share, equivalent to £42.0 million.

The outperformance in the two periods is aggregated to arrive at an outperformance for the three-year period of £157.8 million. The participation in 12.5% of the excess performance results in an award to each of the Founder Directors of 21.8 million shares. The Founder Directors have agreed to forgo part of their awards equal in value to their PAYE and Employee National Insurance Contributions due on the vesting of the awards, which will be settled on their behalf by the Company. After settlement of the PAYE and National Insurance Contributions, the two Founder Directors will be issued with 11.6 million ordinary shares each.

The 2018 IFRS pre-tax profit includes a charge of £25.9 million (2017: £19.1 million, 2016: nil) 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 Contributions is credited back through equity.

Following the announcement of these results on Monday 25th March 2019, the Hansteen Employee Benefit Trust (HEBT) will need to obtain approximately 25 million shares to meet the obligations under the Founder LTIP and Performance Share Plan (PSP). The Group has surplus cash and the market value of the shares are currently at a small discount to the Net Asset Value and therefore the HEBT will be seeking to acquire shares up to a value of £11 million in the market on reasonable terms. Depending on the outcome of the market purchases, the share awards under the Founder LTIP and PSP will be met by a maximum of 25 million newly issued shares if no shares are purchased in the market, or a combination of share purchases and newly issued shares.

In the near term, each of the Joint Chief Executives intends to sell some or all of their existing shareholdings (3.7 million shares each) but will each be retaining the 11.6 million shares that they receive in relation to the Founder LTIP period ending 31 December 2018. This will increase their ownership to more than treble their previous shareholdings.

Principal Risks AND UNCERTAINTIES

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

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

The Board has and continues to monitor the developments in the Brexit negotiations with a view to assessing the potential impact on the business. The uncertain outcome of the negotiations makes it difficult to assess the potential impact on the business, but the Board considers that the principal risks set out below deal with the potential consequences that might result from the failure to agree satisfactory terms with the EU such as tenant failure, recession and reduced profitability and lack of availability of capital.

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

Corporate and Social Responsibility

Environment

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

Community

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

People

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

Hansteen has been running a successful summer internship programme in the regional offices for a number of years, providing students who are studying Real Estate with an opportunity to gain hands-on experience in many aspects of Asset Management. This has proved a valuable entry point for our graduate trainee programme as many of the graduates return to us for their first step on their career ladder.

This year Hansteen has helped a further four team members to successfully complete their Assessment of Professional Competence (APC). The APC gives the graduates the practical training and experience which, when combined with academic qualifications, leads to full RICS membership. This sponsorship involves providing the graduates with peer-to-peer learning, workshops, senior mentorship and mock interview panels. We continue to support a further four graduates and expect them to complete their APC in 2019-2020.

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

Equality and Diversity

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

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

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

As at 31 December 2018, the composition of Hansteen's employees, including both Executive and Non-Executive Directors, was as follows:

Gender Pay Gap

We have many years of industry experience which we are keen to combine with increasingly flexible ways of working. We believe this will help attract and retain a skilled and diverse population equipped to drive returns for our shareholders. We remain confident that men and women in our business are paid equally for doing similar roles. They join us on the same salary and can progress their careers at the same rate.

While we are aware of our gender pay gap, we are also clear of the reason for it. In common with much of the property industry, our gender pay gap is a result of the roles men and women hold within the business and the salaries that those roles attract. We are continuing to work on narrowing the gap and we are confident that our actions and flexible approach will help us gradually close the gap. There is complete commitment at senior management level in Hansteen to achieving a higher number of women in senior roles but we recognise that in common with the rest of the industry, this will take time.

Gender pay gap figures

The gender pay gap is defined as the difference between the mean or median hourly rate of pay that male and female colleagues receive.

Our figures are based on the hourly rate of pay as at 5 April 2018 and bonuses paid in the full 12 months to April 2018.

The gender bonus gap is higher than the gender pay gap because bonus payments are more substantial for more senior and more responsible roles. In Hansteen these are currently filled by significantly more men than women.

Proportion of male and female colleagues receiving a bonus payment.

Bonuses are used to reward and retain our best people.

Proportion of men and women in each pay quartile

This data demonstrates the underlying reason for our pay gap. The hourly rate of pay is divided into four equal quartiles. In the lowest quartile women represent 54.5% of our population, in the highest quartile they represent 30.0%.

Why we have a gender pay gap

While men and women are paid equally for doing similar roles in our business, the main reason for our gender pay gap remains structural - women are more absent from the senior roles which attract higher salaries.

We know that culturally, the property sector can be seen as a more attractive career option for men than women and we are playing our part in trying to alter this view.

What are we doing to address our gender pay gap?

Adjusting the balance between males and females in higher paid roles has been on our Board's agenda since before the requirement to publish data and we know it will take time to achieve.

We have non-discriminatory recruitment practices and we are clear that the starting salaries of men and women for the same roles are the same. Men and women have the same career opportunities and both men and women can and do progress throughout the business. We are actively working on our culture to encourage a truly diverse team and have identified behaviours which support our values. We support flexible working and have seen an increase in the number of our colleagues who have chosen to work flexibly. Currently 7% of our colleagues work flexibly and a number now elect to work remotely on an ad hoc basis. We are increasingly working with women's networks and businesses encouraging diversity.

Recruitment

We recruit without any form of discrimination and encourage our colleagues to recommend potential candidates to us. We look for colleagues with the right skills and knowledge who are willing to espouse the behaviours which underpin our culture, and we are continuing to broaden our methods of recruitment with a view to attracting an increasingly diverse population. We actively work with schools in our communities and will continue to encourage more women to pursue careers in finance.

Slavery and Human Trafficking Statement

The slavery and human trafficking statement made by Hansteen, pursuant to section 54(1) of the Modern Slavery Act 2015, which relates to the Company and its subsidiaries in respect of the financial year ended 31 December 2018, can be found on the Company's website https://www.hansteen.co.uk/about-us/our-governance/modern-slavery-act-disclosure. The statement sets out the measures that Hansteen has taken to address the risk of slavery and human trafficking taking place in our business and within our supply chain throughout the year.

statement of directors' responsibilities

The responsibility statement has been prepared in connection with the Company's full Annual Report for the year ended 31 December 2018. Certain parts of the Annual Report are not included in this announcement, as described in note 2.

Responsibility statement

We confirm that to the best of our knowledge:

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

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

By order of the Board:

Morgan Jones and Ian Watson

Joint Chief Executives

24 March 2019

Consolidated income statement for the year ended 31 December 2018

3 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.

Consolidated statement of comprehensive income for the year ended 31 December 2018

All components of other comprehensive income may be recycled through the income statement.

Balance sheets as at 31 December 2018

The financial statements of Hansteen Holdings PLC, registered number 05605371, were approved by the Board of Directors and authorised for issue on 24 March 2019. Signed on behalf of the Board of Directors

Ian Watson and Morgan Jones

Joint Chief Executives

Statements of changes in equity for the year ended 31 December 2018

Other reserves comprises a deficit relating to the purchase of the Company's own shares. See note 15.

Cash flow statements for the year ended 31 December 2018

NOTEs to the financial statements

1. General information

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

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

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

2. Basis of preparation

The financial information set out in these condensed financial statements does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

The statutory accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee as endorsed by the EU relevant to its operations and effective for accounting periods beginning on 1 January 2018.

In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2018.

The adoption of the following amendments has not had any material impact on the disclosures or on the amounts reported in these financial statements.

The adoption of the IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases had the following impact on the disclosures and amounts reported in these financial statements.

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

3. Revenue and cost of sales

Including interest income of £0.3 million (2017: £0.3 million), total revenue was £56.4 million (2017: £64.2 million5).

4 Direct operating expenses are reported net of service charge income.

5 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. Comparative figures have been included accordingly.

4. Normalised Income Profit and Normalised Total Profit

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

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

Continuing administrative expenses of £13.0 million (2017: £13.4 million) plus the Founder LTIP charge of £25.9 million (2017: £19.1 million) reconcile to the administrative expenses of £38.9 million (2017: £32.5 million) reported in the consolidated income statement. Further details on the Founder LTIP are set out in note 17.

Net interest expense in 2017 in NIP excluded the interest on the convertible bond as this expense was not recurring.

5. Operating segments

Segment revenues and results

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

6 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.

Segment assets

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

7 Includes investment properties held for sale and right of use assets for head leases.

8 Includes investment properties held for sale.

6. Other operating income

In 2018, other operating income includes £0.4 million of insurance receipts (2017: £0.5 million) and £0.2 million receipt in relation to a loan acquired as part of the acquisition of a property portfolio in 2014. The bank loan was acquired by the Company at a discount and the accounts for the year ended 31 December 2014 included a gain of £3.2 million on the acquisition of the loan. The Company agreed to the liquidation of the original borrower in 2018 in exchange for a final loan repayment of £0.2 million. In 2017 there was an additional £0.1 million relating to a forfeited deposit on an exchange which did not complete.

7. Tax

UK Corporation tax is calculated at 19.00% (2017: 19.25%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. In addition to the tax charge on continuing operations above, there is a £0.1 million (2017: £2.1 million) tax charge relating to ordinary profits arising on the discontinued operations and a £1.5 million tax credit (2017: £7.7 million tax charge) arising on the profit on disposal of discontinued operations as disclosed in note 10.

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

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

8. Dividends

As a REIT, the Company is required to pay Property Income Distributions (PIDs) equal to at least 90% of the Group's exempted net income, after deduction of withholding tax at the basic rate of 20% (2017 20%). £25.2 million of the dividends paid during the year ended 31 December 2018 is attributable to PIDs (2017: £32.9 million).

9. Earnings per share and net asset value per share

The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain earnings per share (EPS) information. Diluted EPRA EPS, adjusted EPS and EPRA NAV are reconciled to the IFRS measures in the following table.

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

*Diluted EPRA EPS has been adjusted to exclude the impact of the Founder LTIP charge on the earnings per share.

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