Half-year Report

Hansteen Holdings PLC

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

HALF YEAR RESULTS

Hansteen (LSE: HSTN), the investor in UK and continental European industrial property, announces its half year results for the six months ended 30 June 2017.

Financial Highlights

· IFRS pre-tax profit increased by 185.6% to £156.5 million (H1 2016: £54.8 million)

· Normalised Income Profit (NIP) increased by 25.9% to £38.9 million (H1 2016: £30.9 million)1

· Normalised Total Profit (NTP) increased by 172.0% to £88.4 million (H1 2016: £32.5 million)

· EPRA NAV per share increased by 2.8% to 132.5p (31 December 2016: 128.9p)

· IFRS NAV per share increased by 6.9% to 132.5p (31 December 2016: 124.0p)

· November interim dividend increased by 4.5% to 2.3p per share (November 2016: 2.2p per share)

Operational Highlights

· German and Dutch portfolio sold for €1.28 billion representing a premium of approximately €76 million or 6% to 31 December 2016 valuation and generating a pre-tax profit of £47.9 million

· Transaction realises the value in the German and Dutch portfolio when occupancy and rent were at a high point for Hansteen ownership and also when Euro/Sterling exchange rate was historically favourable

· Proposed Return to Shareholders of up to £580 million by end of 2017

· Settlement of the €100 million convertible bonds with a combination of cash and equity

· Acquisition of Industrial Multi Property Trust PLC

· Property valuation increase of 2.3% or £17.4 million on the remaining Total portfolio *

Melvyn Egglenton, Chairman, commented: "After an extremely busy and successful period, with completion of the sale of the German and Dutch portfolio for €1.28bn, the acquisition of Industrial Multi Property Trust and the settlement of €100 million of convertible bonds, it is very pleasing to report record profits and Net Asset Value. Looking forward, following the proposed Return to Shareholders, our projections indicate that there is scope to increase dividends, on a fully covered basis, compared to the historic levels."

Ian Watson and Morgan Jones, joint Chief Executives, added: "For the first time in many years, strong occupier demand has resulted in increasing rents per let sq ft and it looks as though this trend will continue. We believe there are constraints to new supply because, to feasibly build equivalent properties to those in our portfolio, a developer would need to achieve a rent of between £6 and £7 per sq ft. Furthermore, the appreciation by investors of our type of properties continues to grow and recent transactions would indicate that we could well benefit from further yield compression."

For more information:

* Total portfolio includes 100% of IMPT's portfolio of which Hansteen had an investment of 93.4% at 30 June 2017. After the balance sheet date, Hansteen has purchased the remaining 6.6% of the shares and now owns 100% of IMPT

Presentation for Analysts

A presentation to analysts (with dial in facilities and webex) will take place today at 09:30 at Tavistock, 1 Cornhill, London, EC3V 3ND.

Dial in details are as follows:

Direct DDI (s) for Participant Connection: UK Toll Number: +44 3333000804 UK/Toll-Free Number: 08003589473

Participant Pin Code: 06727718#

Webex details are as follows:

Audience URL: https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID=eaf6d0d067e833fd54b8446096b84354e 

Audience Password: 301200470

If you need any further details, please email Jeremy Carey at [email protected] or Kirsty Allan at [email protected] 

Chairman's interim statement

The first half of 2017 has been an extremely busy and successful period for Hansteen and I can once again report record profits and Net Asset Value. The Group has completed the sale of the German and Dutch portfolio for €1.28 billion and we intend to return up to £580 million to Shareholders. In addition, we have acquired the entire issued share capital of Industrial Multi Property Trust and settled the €100 million of convertible bonds. More details on these transactions can be found below.

The sale of the German and Dutch portfolio realised the value that had been created over a sustained period, from good buying, active asset management using Hansteen's platform as well as capitalising on the strengthening Euro. The sale is in line with the Company's long term business and portfolio strategy of buying at a low point in the cycle, with low occupancy and rents, adding value through improved asset management and subsequently realising the investment at a higher point in the cycle. The Board would like to acknowledge and thank the Hansteen European team for the hard work, skill and commitment which they have contributed to the business over the last 12 years.

We previously reported that the fundamentals of occupational supply and demand in the light industrial sector were positive and the first half of 2017 has seen this momentum continue. With limited new developments due to low rents and capital values, demand has continued to outstrip supply across all of our regions, partly due to the growth of e-commerce. This has translated into further rental growth across the UK with ERVs increasing by 2.1% on average across the portfolio in the six months from 31 December 2016. We have completed a total of 432 new lettings and lease renewals and the passing rent per let sq ft on the UK portfolio has increased by 7.2% between December 2016 and June 2017. Some regions are experiencing greater growth than others principally where we have estates with little or no vacant space and there is no available competing stock. Our average rent in the UK is £3.66 per sq ft (31 December 2016: £3.41 per sq ft) and the rent needed to justify development is substantially higher. Given the growing demand profile, we believe that regional urban industrial and logistics properties will experience a period of significant rental growth.

Results

We believe that the best measures of performance are Normalised Profits (our measure of underlying realised profits) and EPRA NAV per share. Normalised Income Profit (NIP), recurring earnings excluding profits or losses from the sale of properties, increased by 25.9% to £38.9 million (H1 2016: £30.9 million). Normalised Total Profit (NTP), comprising NIP plus profits or losses from the sale of properties and realised profits from one off items, increased by 172.0% to £88.4 million (H1 2016: £32.5 million).

EPRA NAV per share has increased by 2.8% to 132.5p (31 December 2016: 128.9p). This growth is in addition to the payment of a 3.7p dividend per share in the period. These are all record results for the business and show another strong performance in the first six months of the year.

Hansteen's IFRS pre-tax profit was £156.5 million (H1 2016: £54.8 million) with the 185.6% increase largely due to the profit on the sale of the German and Dutch Portfolio which is detailed below. Diluted EPRA earnings per share were 2.4p (H1 2016: 3.4p). The table below shows how the NIP and NTP profit measures were calculated:

A reconciliation of NIP and NTP to the IFRS profit before tax is contained in Note 9 of the Condensed Financial Statements.

The improvement in the EPRA NAV from 31 December 2016 can be summarised as follows:

http://www.rns-pdf.londonstockexchange.com/rns/7209O_-2017-8-22.pdf

Basic NAV per share is reconciled to EPRA NAV per share in Note 10 of the Condensed Financial Statements.

Dividend

The Board has increased the interim dividend by 4.5% to 2.3p per share (November 2016: 2.2p per share) reflecting the strong income performance of the portfolio prior to the sale of the German and Dutch assets in June 2017. The dividend payment of 2.3p per share will include a 2.1p Property Income Distribution (PID) and will be paid on 27 October 2017. The associated record date is 29 September 2017 and the ex-dividend date is 28 September 2017.

Looking forward and without the majority earnings from the Continental European portfolio, Hansteen's dividend will be more closely prescribed by the REIT rules whereby broadly speaking, 90% of our Normalised Income Profit (NIP) will be distributed to shareholders. This will result in a higher dividend on the reduced capital base and the increased dividend will remain well covered. Further details can be found in the Outlook.

Sale of German and Dutch Portfolio

The German and Dutch Portfolio was sold on a debt free basis for cash to the Blackstone Purchasers, entities owned by funds advised by affiliates of the Blackstone Group L.P. and M7 Real Estate. The value given to the properties was €1.28 billion which represents a premium of approximately €76 million (6%) to the 31 December 2016 valuation.

The net cash received by Hansteen in connection with the sale was approximately €1.276 billion after the deduction of €25 million which was retained by Blackstone to satisfy 50% of the latent capital gains tax liabilities relating to the German properties. Immediately upon completion, €471 million was used to repay debt secured against the German and Dutch Portfolio and approximately €36 million was used or has been retained to meet costs and other tax liabilities associated with the sale. Following these deductions and repayments, the net cash increase was approximately €769 million.

The sale has contributed a pre-tax profit of £47.9 million and a post-tax profit of £41.6 million at 30 June 2017. Also included in the profits is £71.6 million of realised exchange gains of which £57.1 million was previously credited to reserves in the balance sheet and £14.5 million arose during the six months to 30 June 2017.

Return to Shareholders

The Board proposes to return up to £580 million in aggregate to Shareholders which is the equivalent of 70p per share. The Board currently anticipates that this return will be implemented by the end of 2017, and a circular will be posted to shareholders in due course. The Board's intention is to ensure that the £580 million is treated as a capital return and not an income return.

Convertible Bond

Following the sale of the German and Dutch portfolio and the net cash increase of approximately €769 million, Hansteen offered to buy and/or convert the €100 million of convertible bonds due in 2018. All of the bondholders chose to settle their bonds with 15.9% opting to receive cash and 84.1% opting to receive shares. The cash settlement was paid on 5 July 2017 and although the shares were not issued until 10 July 2017, Hansteen was contractually obliged to issue these shares when the bonds converted on 29 June 2017. Therefore, the equity is included in the 30 June 2017 balance sheet and the number of shares has been included in the per share measures. The calculation of the earnings per share and Net Asset Value per share measures are shown in note 10 of the Condensed Financial Statements and further details on the convertible bonds are shown in note 14 of the Condensed Financial Statements.

Industrial Multi Property Trust PLC (IMPT)

On 17 February 2017, Hansteen and the Independent Directors of IMPT reached agreement on the terms of a recommended all cash offer for the entire issued ordinary share capital of IMPT. Hansteen acquired 57.2% of the issued share capital of IMPT either through stock market purchases or through valid acceptances of the original offer of 300p per share. The offer was subsequently increased to 330p per share and as at 30 June 2017, Hansteen owned 93.4% of IMPT. The remaining 6.6% of shares were acquired by 23 July 2017.

The properties within the IMPT portfolio are similar in nature to the existing Hansteen portfolio and following a detailed assessment of the assets, our UK asset management team believe there is scope to increase the ERVs in a similar way as we have done with the existing UK portfolio over the last 12 months. With a yield on the passing rent of 9.4% and a vacancy rate of 8.2% at 31 December 2016, the acquisition represented a good opportunity to acquire a significant amount of light industrial property at an attractive price. At 30 June 2017 the portfolio is valued at £90.5 million compared with £85.3 million at 31 December 2016 and the ERV of the portfolio has increased from £9.0 million to £9.5 million per annum.

The portfolio consists of 51 multi‐let properties offering 500 leasable units with a total floor area of approximately 1.7 million sq ft all of which are located in the UK. Approximately 86% is invested in light industrial property and 14% in offices with a passing rent roll of £8.0 million per annum at 30 June 2017. The portfolio is well distributed across the UK, with the majority of sites located close to major towns and to major motorways and trunk roads.

Property Portfolio

The total portfolio owned or co-owned at 30 June 2017 was valued at £805.2 million, with a rent roll of £60.2 million per annum, with a vacancy of 7.9%. It comprised 18.0 million sq ft of built stock with a yield on the passing rent of 8.0% generated from 337 estates with 3,259 tenants. Included within the portfolio, there are 447 acres of development land valued at £49.9 million.

The value of the total portfolio increased by £17.4 million, or 2.3% on a like-for-like basis, from 31 December 2016, after allowing for purchases and sales.

In addition to the sale of the German and Dutch assets discussed above, 18 other sales have completed for a combined consideration of £21.1 million, generating profits of £0.9 million over the 31 December 2016 valuation.

On a like-for-like basis, both passing rent and occupancy on the UK portfolio improved marginally from 31 December 2016. The statistics follow 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.

Hansteen Property Portfolio Summary at 30 June 2017:

All Euro figures translated at the period end exchange rate of £1 = €1.1391

* Figures include 100% of IMPT's portfolio of which Hansteen had an investment of 93.4% at 30 June 2017. After the balance sheet date, Hansteen has purchased the remaining 6.6% of the shares and now owns 100% of IMPT.

** Figures include £10.0 million of trading property.

Finance and hedging

Finance

As at 30 June 2017, the Group had total bank facilities of £385.8 million (31 December 2016: £771.1 million), of which £373.8 million were drawn (31 December 2016: £712.5 million). £175.1 million was swapped at an average rate of 0.7%, with a further £50.0 million capped at an average rate of 0.8%. Including obligations under finance leases, the Group had borrowings of £388.3 million at 30 June 2017 (31 December 2016: £816.6 million including the mark-to-market value of the convertible bonds).

In August 2017, the £20.0 million RBS loan secured on Saltley Business Park was repaid leaving the property uncharged and the £31.4 million RBS loan secured on the IMPT properties was also repaid. In due course the IMPT properties will be secured as part of the RBS Revolving Credit Facility.

All of the loans continue to have significant headroom on their loan-to-value and interest cover covenants. The weighted average time to maturity of borrowings following the £51.4 million repaid to RBS in August 2017 is 4.0 years and the Group's all-in cost of borrowing is 2.4% (31 December 2016: 3.2%).

Analysis of the Group's bank loan facilities following the repayment of the two RBS loans is set out below:

Following the sale of the German and Dutch assets, cash resources at 30 June 2017 were £726.9 million (31 December 2016: £82.5 million). With the settlement of part of the convertible bond in cash (€27.8 million or £24.4 million), the Return to Shareholders (up to £580.0 million) and the repayment of the two debt facilities all discussed above, the cash balance will be reduced to approximately £70 million. Net debt will therefore be approximately £250 million and net debt to value using the portfolio value of £805.2 million will be around 31.0%.

Founder Long Term Incentive Plan (LTIP)

30 June 2017 marks the halfway point in the current and last LTIP performance period and from 31 December 2015, the EPRA NAV after adding back dividends paid has increased by 30.35p per share. This represents a return of 17.5% per annum.

In accordance with accounting standard IAS33, no accrual for the potential LTIP shares is included in the EPRA NAV per share calculation because the target return for the whole performance period has not yet been reached. The accounting standards do however require a charge to the income statement for the LTIP of £7.9 million although this charge is reversed in the balance sheet.

To help shareholders estimate the potential dilution to the EPRA NAV the Board believes the following illustrative methodologies could be helpful.

The first method is to assume the performance period ended on 30 June 2017. Based on this assumption the LTIP award would have been £27.7 million or 22.2 million ordinary shares. This would have diluted the June EPRA NAV by 3.5p per share. However the Directors believe this would probably overstate the dilution because of the exceptional return from the sale of the German and Dutch portfolio which will not be repeated in the second half of the performance period and the impact of holding the sale proceeds since completion in June 2017.

An alternative method is to take the actual results for the 18 months to 30 June 2017 and add only a continuing NIP at a rate of £31 million per annum. On this basis the LTIP award would be £15 million and dilute the EPRA NAV by 1.8p. This figure may understate the outcome because returns and the LTIP will grow if there are increases in property valuations.

Outlook

Taking the H1 2017 NIP of the continuing business (£15.5 million) and for illustrative purposes assuming this result continues, the annualised NIP would be £31.0 million or 8.0 pence per share assuming the number of shares decreases pro-rata with the capital returned. On this basis, there is scope to increase dividends (on a fully covered basis) from the historic levels of 5.25 pence a share in 2015 and 5.9 pence a share in 2016.

In the UK we have 3,231 tenants representing a very broad cross section of commercial activities woven into the regional economies with a continuing boost to our market from the internet retailer revolution. This diverse rent roll is both resilient and dynamic with the current positive demand and supply situation underpinning that beneficial business backdrop. In the first half of the year, the UK business showed value growth as a result largely of rental growth and successful asset management initiatives with the valuation yield remaining virtually unchanged. The 8.0% yield on the built portfolio (passing rent divided by the value of the properties) is compared to the current all-in borrowing costs for the business of 2.4%.

For the first time in many years strong occupier demand has resulted in increasing rents per let square foot and it looks as though this trend will continue. We believe there are constraints to new supply because to feasibly build equivalent properties to those in our portfolio a developer would need to achieve a rent of between £6 and £7 per sq ft.

We are currently enjoying a period of strong investment and occupier demand. The appreciation by investors of our type of properties continues to grow and recent transactions would indicate that we could well benefit from further yield compression.

Melvyn Egglenton

Chairman

22 August 2017

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.

Following the sale of the German and Dutch businesses in the first half of the year the Board has re-assessed the principal risks facing the Group, the Board considers them to be consistent with the prior year with the exception of the risks related to foreign currency, the probability of which the Board considers to have reduced.

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

We confirm to the best of our knowledge:

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

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

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

On behalf of the Board

Ian Watson Morgan Jones

Joint Chief Executive Joint Chief Executive

22 August 2017

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 3D

Consolidated income statement

for the six months ended 30 June 2017

Consolidated statement of comprehensive income

for the six months ended 30 June 2017

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

Consolidated balance sheet

As at 30 June 2017

Consolidated statement of changes in equity

for the six months ended 30 June 2017

Consolidated cash flow statement

for the six months ended 30 June 2017

Notes to the condensed set of financial statements for the six months ended 30 June 2017

1. General information

Hansteen Holdings PLC is a company which is incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 1st Floor, Pegasus House, 37-43 Sackville Street, London, W1S 3DL.

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

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2016 was derived from the statutory accounts for the year ended 31 December 2016, a copy of which has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, the condensed financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published annual financial statements for the period ended 31 December 2016. There are no new standards or amendments to standards effective for the periods presented that have a material impact on the Group.

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 same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

The interim report was approved by the Board on 22 August 2017.

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

Balance sheet: £1 = €1.1391 (31 December 2016: £1 = €1.1651)

Income statement: £1 = €1.1626 (30 June 2016: £1 = €1.2845)

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 14 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 2017 and there have been no material changes in the related party transactions described in the Annual Report and Accounts for the year ended 31 December 2016.

5. Operating segments

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

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

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

6. Net finance costs

7. Tax

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%). £15.6 million of the cash dividend paid in the period ended 30 June 2017 is attributable to PIDs (2016: £10.0 million).

9. Normalised income profit and normalised total profit

Normalised Income Profit and Normalised Total Profit are adjusted measures intended to show the underlying earnings of the Group before fair value movements and other non-recurring or otherwise non-cash one-off items. A reconciliation of the Normalised Income Profit and Normalised Total Profit reconciled to profit before tax prepared in accordance with IFRS is set out below.

10. Earnings per share and net asset value per share

The European Public Real Estate Association ("EPRA") has issued recommended bases for the calculation of certain earnings per share ("EPS") information. Diluted EPRA EPS is reconciled to the IFRS measure in the following table.

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

11. Discontinued operations

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

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

12. Disposal of investment in subsidiary

As referred to in note 11, on 16 June 2017 the group disposed of its interests in the German and Dutch portfolio. The net assets of the disposal group at the date of disposal were as follows:

There were no disposals of subsidiaries completed in 2016. The consideration for the sale of the entities in 2017 was settled in cash. The impact of discontinued operations on the Group's results in the current and prior periods and the profit on disposal of discontinued operations are disclosed in note 11.

13. Investment property

*Property purchase additions of £88.8 million relates to the acquisition of Industrial Multi Property Trust plc.

In accordance with IFRS 13, the Group's investment property has been assigned a valuation level in the fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). In general, the Group's investment property as at 30 June 2017 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)