Half Yearly 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 2014.

Financial Highlights

· Normalised Income Profit increased by 32.8% to £25.1 million (H1 2013: £18.9 million)

· Normalised Total Profit increased by 59.1% to £35.0 million (H1 2013: £22.0 million)

· IFRS pre-tax profit of £66.7 million (H1 2013: £14.9 million)

· Normalised Income Profit per share increased by 31.0% to 3.8p (H1 2013: 2.9p)

· Diluted EPRA EPS of 3.2p (H1 2013: 2.2p)

· EPRA NAV per share 96p (31 December 2013: 91p)

· November interim dividend increased by 5.3% to 2.0p per share (November 2013: 1.9p per share)

· Net debt to property value ratio 45.9% (31 December 2013: 49.3%)

Operational Highlights

· 30 sales from the total portfolio with a total value of £90.4 million and a combined profit of £8.3 million

· £142.7 million of properties acquired in the year to date at an average yield of 11.3% and a vacancy of 18.7%

· Acquisition of a further 9.2% stake in the Ashtenne Industrial Fund ('AIF') for £26.0 million increasing ownership to 36.7%

· Placing of 44,834,877 shares to raise £46.3 million

· Completion of the German debt refinancing with banks new to Hansteen at an all in average cost of 3.8% per annum

· Total value of portfolio owned or co-owned increased by 7.2% to £1.6 billion (31 December 2013: £1.5 billion)

· Like-for-like property valuation increase across the total portfolio of 4.6% or £73.5 million

· Annualised rent roll from total portfolio up by 7.0% to £144.3 million (31 December 2013: £134.9 million)

· Like-for-like occupancy improvement of 17,000 sq m or 2.5% of vacancy at the start of the year

* Total portfolio relates to property, owned and managed, of Hansteen and its associated funds.

James Hambro, Chairman, commented: 

"Our strategy of substantially growing the portfolio from the low point in the cycle is beginning to realise its promise. Investment market conditions have undoubtedly become more competitive as investors begin to recognise that regional industrial property is likely to produce superior returns in the medium term. Despite the increased competition, our creative approach to acquiring property is still presenting openings to purchase well priced assets that will provide potential for income and growth. Occupational markets are continuing to improve and have led to further increases in our rent roll and improved occupation.

"In every region we are seeing improving occupational and investment markets albeit to differing extents and from different starting points. Recently, some commentators have questioned the sustainability of current investment yields in various property sectors. Whilst it may be true that in some areas of property, until rental growth is established, scope for further yield compression may be limited, the Board does not believe this to be the case in relation to Hansteen's portfolio of regional light industrial properties."

For more information:

CHAIRMAN'S INTERIM STATEMENT

We present our interim results for the six months to 30 June 2014. The results show a record level of profits and value growth and despite growing competition for investments, we have been able to make some significant acquisitions with excellent value potential. In our most recent annual report, we highlighted that our business model is based on two key strengths: an entrepreneurial and opportunistic approach to buying and selling property, funding and deal structuring; and a focused, disciplined and skilled asset management and marketing platform. Both elements of this model have performed strongly in the first half of 2014, with a significant amount of property acquired and sold, new equity raised and the refinancing of a considerable proportion of our debt. The asset management and marketing platform has continued to deliver excellent results with increases in like-for-like rental income and occupancy as well as high levels of new leases and lease renewals.

I am pleased to report that our financial results are again very strong even though property sales in the fourth quarter of 2013 reduced our initial rent roll in 2014 by £4.8 million per annum and the Euro weakened against the Sterling in the first half of 2014 by 4.0%.

We had highlighted previously a dramatic improvement in institutional investor sentiment toward light industrial property, particularly in the UK, and the first half of 2014 has shown how Hansteen has been well placed to benefit from this significant upturn. £90.4 million of sales were completed at £8.3 million above book value and at an average yield of 6.5%. Despite the increased competition for well priced industrial assets, we have also managed to acquire £142.7 million of property so far in 2014, all with opportunities to add value. Valuations have risen by 4.6% from December 2013, with the increase across all three of our core regions.

In March 2014, £46.3 million (net of expenses) was raised from the placing of 44.8 million shares at a 2.8% discount to the closing share price on 27 March 2014.

Hansteen now holds a 36.7% stake in AIF following the original acquisition of 27.5% announced in August 2013 and the additional 9.2% stake purchased for £26.0 million in March 2014. The increased investment was purchased from three vendors at a price of 46.5 pence per unit and, since acquisition, the value of the AIF properties has increased by 4.4%.

Hansteen has completed the refinancing of both its HBOS and UniCredit facilities which were due to expire in October 2014 and February 2015 respectively. A five-year, €235 million facility has been provided by a consortium of lenders led by Landesbank Hessen-Thüringen Girozentrale (Helaba). 80% of the interest on the loan has been hedged, resulting in an interest cost of 3.5% per annum at the time of refinancing, excluding fees. HSBC provided a five-year, €108 million facility which, with a €55 million interest rate hedge, gave an interest cost of 2.9% per annum at the time of refinancing, excluding fees. The combined terms equated to an all in average rate of 3.8% per annum, including fees.

As announced in December 2013, Hansteen acquired 50% of a loan secured against a portfolio of mainly multi-let industrial property in the Netherlands. Following a series of complex transactions, in exchange for settlement of the loan obligations and the payment of a cash sum, Hansteen has now taken full ownership of the portfolio. Hansteen has made a net investment of £40 million of equity in the transaction which has contributed over £17 million to the IFRS pre-tax profit. £4.0 million of finance income relates to the unwinding of the discount on the loan that was secured on the portfolio and £3.4 million of operating income arose when the loan was satisfied in exchange for the properties on which it was secured. Subsequent to the acquisition of the entire portfolio the period end revaluation increase was £9.8 million.

Results

Normalised Income Profit (recurring income less costs excluding profit from sales of properties, valuation movements and one-off items) increased by 32.8% to £25.1 million (H1 2013: £18.9 million). The improvement of £6.2 million is due to an increase in the share of associates' profit and increased management fees from our investment in AIF and HPUT II. There is an associated increase in overheads due to the expansion of the UK office structure and UK team. In addition, there is £4.0 million of finance income that relates to the unwinding of a discount on the loan that was secured on the portfolio in the Netherlands. Normalised Income Profit per share (pre-tax) increased by 31.0% to 3.8p (H1 2013: 2.9p).

Normalised Total Profit (Normalised Income Profit plus profits or losses from property sales and realised profits from one-off items) increased by 59.1% to £35.0 million (H1 2013: £22.0 million). The improvement reflects the £6.2 million Normalised Income Profit increase plus a £3.4 million gain when the Netherlands loan was satisfied in exchange for the properties on which it was secured. £3.5 million is due to an insurance receipt in Germany. Normalised Total Profit per share (pre-tax) increased by 51.4% to 5.3p (H1 2013: 3.5p).

The table below shows how these profit measures were calculated:

Under IFRS, Hansteen reported a £66.7 million pre-tax profit for the period (H1 2013: £14.9 million). In addition to Normalised Profits the IFRS pre-tax profit includes movements in fair value of investment properties and financial derivatives. The property valuation improvement was £28.1 million for the wholly owned portfolio and £15.0 million for the share of associates. Also included in the IFRS pre-tax profit is a charge of £8.4 million related to a potential LTIP award and associated National Insurance Contributions. The charge for the potential LTIP award does not impact net assets as it is credited back through equity.

Diluted EPRA earnings per share were 3.2p (H1 2013: 2.2p). The improvement in net assets of £81.0 million from 31 December 2013 can be summarised as follows:

The Group's EPRA net asset value (NAV) was 96p per share (31 December 2013: 91p).

Dividend

The Board has increased the interim dividend to be paid on 20 November 2014 by 5.3% to 2.0p per share (November 2013: 1.9p per share) reflecting the intention of the Board to maintain its prudently progressive dividend policy. 1.0p of the dividend payment will be a PID. The associated record date is 24 October 2014 and the ex-dividend date is 23 October 2014.

Property Portfolio

The portfolio that is owned or co-owned was valued as at 30 June 2014 at £1.65 billion, with a rent roll of £144.3 million per annum, and a vacancy of 16.7%. It comprised 4.4 million sq m with a yield of 8.8% and a reversionary yield of 10.8% generated from 624estates with 6,200 tenants in five different countries.

The value of the total portfolio increased by £73.5 million or 4.6% on a like-for-like basis from 31 December 2013, after allowing for purchases, sales and currency movements. £43.1 million of this gain attributable to Hansteen is derived from our wholly owned properties and our share in the UK associates. All three of the core regions in which Hansteen operates showed property valuation increases. The UK portfolio increased by £48.0 million or 6.1% and the German portfolio increased by €19.0 million or 2.7%. The Benelux portfolio value increased by €12.1 million or 4.1%, with all of the increase coming on the newly acquired Netherlands portfolio.

From December 2013, HPUT property values increased by £9.6 million or 7.4%, HPUT II by £6.1 million or 4.9% and AIF by £29.5 million or 7.0%. Hansteen's share of the increases in the three UK funds from December 2013 totalled £15.0 million. The wholly owned UK portfolio increased by £2.8 million or 2.5%.

It should also be noted that property valuations do not take account of portfolio premiums and as they are evidence based tend to be behind the market. Given that a lot of liquidity is currently provided by larger portfolio buyers the current premium for size will not be reflected in our annual valuations.

Since the beginning of the year, 30 sales totalling 140,000 sq m of space have completed, for a combined consideration of £90.4 million generating profits of £8.3 million. Of the £90.4 million of sales, £12.7 million were from the wholly owned portfolio at £0.5 million above book value and £77.7 million were from the co-owned portfolio at £7.8 million above book value. Hansteen's share of the profits from these co-owned portfolio sales, was £2.5 million. The sales were completed at an average yield of 6.5%.

£142.7 million of acquisitions in five separate transactions have completed, the largest of which was at the end of June when we completed the purchase of 41 assets in the core Ranstad area of the Netherlands. A new €60 million five year loan has been provided by ING. The property portfolio extends to more than 370,000 sq m across 41 estates with a gross annual rental income of approximately €15.4 million per annum, and contracted rental income of more than €16.0 million per annum. The current vacancy rate is in the region of 20%, which provides a significant opportunity to add value. The portfolio was independently valued at 30 June 2014 at €126.5 million.

HPUT II has acquired £51.0 million of property in four separate transactions, including the 'Spice' portfolio which was purchased in February 2014 for £41.2 million. In total, 19 properties have been acquired by HPUT II so far this year, adding £4.0 million of rent per annum at an average yield of 7.9%. HPUT II has now invested £70.1 million of equity since its formation in May 2013 and several other opportunities are currently being pursued in order to invest the remaining £36.8 million.

On a like-for-like basis, after allowing for sales, purchases and currency movements, annual rental income for the Group has increased by £1.6 million per annum from the December 2013 rent roll of £134.9 million. Both Germany and Benelux showed like-for-like rental increases with the UK showing a slight decrease due to some significant lease renewals with rent incentives. Our like-for-like rent figures are calculated on passing rents and not contracted rents and all three regions showed like-for-like gains on contracted rents. Like-for-like occupancy (measured by taking the vacant area at the year-end plus purchased vacancy during the period and comparing it with vacancies at the end of the period) has increased by 17,000 sq m from December 2013 with the UK and Germany showing gains and Benelux remaining flat.

Activity levels remained very high in the first half of the year with 819 new leases and lease renewals completed, securing £19.4 million per annum of rental income at an average of £24,000 per letting.

Hansteen Property Portfolio: Summary at 30 June 2014

* Figures include 100% of HPUT, HPUT II and AIF's portfolio. Hansteen has an investment of 33.3% in HPUT and 33.3% in HPUT II and 36.7% in AIF.

Finance and Hedging

Finance

At 30 June 2014, net debt was £427.8 million compared to £419.0 million at 31 December 2013. Net debt to property value was 45.9% (31 December 2013: 49.3%) and net debt to shareholders' equity was 67.3% (31 December 2013: 75.5%). Borrowings increased to £527.0 million at 30 June 2014 from £489.9 million at 31 December 2013.

£239.0 million of borrowings were swapped at an average rate of 0.9%, with a further £90.8 million capped at an average rate of 2.1% and the €100 million convertible loan stock is fixed at 4%.

All of the loans continue to have significant headroom on their loan-to-value and interest cover covenants. Following the refinancing of the UniCredit and HBOS facilities in February 2014, the maturity profile of the Group's existing borrowings has improved significantly, with the weighted average time to maturity of borrowings increased from 1.8 years to 4.2 years. The earliest maturity of a small element (£23.3M) of the current facilities is not due until December 2015. The Group's all-in cost of borrowing at 30 June 2014 was 3.9% (31 December 2013: 3.6%).

As at 30 June 2014, Hansteen had £85.3 million of cash. Taking account of impending financial commitments, when this cash is geared up it provides current fire power of over £100 million. In addition, HPUT II has remaining fire power of approximately £65 million.

Convertible Loan Stock

In July 2013 Hansteen issued a €100 million convertible bond. The money raised was instrumental in enabling our purchase of Ashtenne and the debt refinancing in Germany. In normal circumstances the bonds are unable to convert prior to July 2016 and therefore no accrual has been made to the NAV per share figures. As the conversion price (97.2p) is currently above the NAV (96p) conversion would in any event be accretive. However, on current trends the NAV may soon exceed the convert price and if converted would become dilutive. At present we do not foresee accruing for dilution in EPRA NAV prior to July 2016.

Long Term Incentive Plan (LTIP)

Our policy of buying value during the downturn and working the assets has generated capital and income returns well in excess of 10% per annum since the current LTIP measurement period began in January 2013. If continued, this performance will potentially trigger the Founder LTIP arrangements.

The potential LTIP award can only be estimated at this stage as the out-turn depends entirely on the performance of the business over the three year period ending 31 December 2015. To the extent that growth in EPRA NAV plus dividends exceeds 10% per annum compound over three years, the Joint Chief Executives will each receive shares equating to 12.5% of the out-performance.

In the first 18 months of the LTIP measurement period, EPRA NAV growth plus dividends amounted to a gain of 22.3p per share. This represents at 27% total return. In our EPRA NAV per share figure we have included a number of shares to reflect a possible LTIP award on the basis of what the award would be if the measurement period were taken for only the 18 months to 30 June 2014. The impact of these shares is to reduce EPRA NAV per share from 98p to 96p. As noted above, included in the IFRS pre-tax profit is a charge of £8.4 million related to a potential LTIP award and associated National Insurance Contributions.

Currency

The Group's net assets at 30 June 2014 were £635.6 million, of which 49.5% (£314.9 million) were located in the UK and denominated in Sterling. The remaining 50.5% (£320.7 million/€400.5 million) were located in Germany, the Netherlands, Belgium and France.

The Board reviews its currency hedging policy on a regular basis. The current policy can be summarised as:

· Hedging instruments are used to cover a substantial proportion of Group Euro net assets and estimated net Euro income for the short-term.

· Hedges are implemented at levels which the Board believe are cost effective.

· Hedging is employed as an insurance policy against the impact of a significant fall in the value of the Euro against Sterling rather than a means to speculate for profit.

The Group's investments in Europe are partly matched with Euro borrowings and to that extent there is a natural currency hedge.

During the period, the Group terminated its two €100.0 million currency options for proceeds of £0.7 million, replacing these with two new €100.0 million currency options at an average rate of €1.3 for a cost of £2.9 million. These hedges are held to mitigate the risk of a significant fall in the Sterling value of the European portfolio and the resulting fall in the NAV caused by a weakening Euro.

The Group also has four options hedging €71.0 million net Euro income. These options expire at six-monthly intervals between 31 December 2014 and 30 June 2016. The option expiring on 30 June 2016 was entered into during the year at a cost of £0.2 million. The option is to put €20.0 million and call for GBP at an exchange rate of €1.35/£1. The original three options are to put €51.0 million and call for GBP at an exchange rate of €1.3/£1.

Outlook

In every region we are seeing improving occupational and investment markets albeit to differing extents and from different starting points. Recently, some commentators have questioned the sustainability of current investment yields in various property sectors. Whilst it may be true that in some areas of property, until rental growth is established, scope for further yield compression may be limited, the Board does not believe this to be the case in relation to Hansteen's portfolio of regional light industrial properties for three principal reasons:-

1. The fundamental dynamics of the regional light industrial sector are that rents and values are still below those necessary for replacement of the stock. This should ensure a favourable supply/demand equation until values and rents rise.

2. Following the half year valuation the simple yield (passing rent ÷ value) on Hansteen's attributable share of the entire portfolio under management is 8.91% with a simple reversionary yield (estimated rental value for the whole portfolio ÷ value) of 10.8%. Even against the interest rate backdrop of the last cycle this would be regarded as very high yielding.

3. The current interest rate environment is extraordinary. Sterling Libor can currently be fixed for ten years at less than 2.5% per annum. The ten year rate for Euribor is less than 1.2% per annum. Furthermore, whilst over the last few years super low interest rates were, to some extent, an irrelevance since there was little availability of debt and where it was available margins were high now both debt and equity is available for sound propositions and margins for bank lending appear to have normalised. Such a backdrop to the operation of a high yielding property business is outside the experience of most people working today but the likelihood must be that it will provide scope for continued value growth.

The last 12 months have been the most active in the history of Hansteen with acquisitions, sales and increases in properties under management totalling approximately £800 million. Our strategy of substantially growing the portfolio from the low point in the cycle is beginning to realise its promise. Investment market conditions have undoubtedly become more competitive as investors begin to recognise that regional industrial property is likely to produce superior returns in the medium term. Despite the increased competition, our creative approach to acquiring property is still presenting openings to purchase well priced assets that will provide potential for income and growth. Occupational markets are continuing to improve and have led to further increases in our rent roll and improved occupation.

We have a large and diverse high yielding portfolio located in three distinct regions; the UK, Germany and the Benelux. Much of the portfolio was purchased with low rents and high vacancies and despite considerable asset management success over the last couple of years there is still real reversionary potential inherent in the portfolio, which we expect to continue to drive both income and value. The key to maximising returns from these kinds of properties is detailed, entrepreneurial hands on management and our extensive network of local teams spread throughout our regions have proven expertise in this regard and a consistent track record of successfully adding value.

Hansteen Holdings Board

During the period we welcomed Mel Egglenton and Rebecca Worthington onto the Board. We are fortunate to recruit two very experienced Directors whose contribution will be extremely valuable to the Group.

James Hambro

Chairman

26 August 2014

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 Morgan Jones

Joint Chief Executive Joint Chief Executive

26 August 2014

Copies of this announcement are available on the Company's website at www.hansteen.co.ukand can be requested from the Company's registered office at 6th Floor Clarendon House, 12 Clifford Street, London, W1S 2LL.

Consolidated income statement

for the six months ended 30 June 2014

Consolidated statement of comprehensive income

for the six months ended 30 June 2014

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

Consolidated balance sheet

as at 30 June 2013

Consolidated statement of changes in equity

for the six months ended 30 June 2014

The merger reserve comprises the share premium generated under the cash-box arrangement for the Placing and Open Offer in April 2014. No share premium is recorded in the Company's financial statements through the operation of the Merger Relief provisions of the Companies Act 2006. £41.8 million has been transferred to retained earnings, net of costs of £0.8 million in relation to this share issue.

Consolidated cash flow statement

for the six months ended 30 June 2014

Notes to the condensed set of financial statements for the six months ended 30 June 2014

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 6th Floor, Clarendon House, 12 Clifford Street, London, W1S 2LL.

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

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 2013 was derived from the statutory accounts for the year ended 31 December 2013, 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 auditors drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

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 26 August 2014.

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

Balance sheet: £1 = €1.2488 (31 December 2013: £1 = €1.2004)

Income statement: £1 = €1.2179 (30 June 2013: £1 = €1.1759)

3. Principal risks and uncertainties

Risk management is an important part of the Group's system of internal controls. Senior management staff and the Board regularly consider the significant risks, which it believes are facing the Group, identify 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, the steps taken to mitigate them and additional commentary is as follows:

· Changes in the general economic environment exposes the Group to a number of risks including falls in the value of its property investments, loss of rental income and increased vacant property costs due to the failure of tenants to renew or extend leases as well as the increased potential for tenants to become bankrupt. The Board believes these risks are reduced due to its policy of assembling a portfolio with a wide spread of different tenancies in terms of actual tenants, industry type and geographical location as well as undertaking thorough due diligence on acquisitions. The level of exposure to individual tenants is regularly monitored to ensure they are within manageable limits. Rent deposits or bank guarantees are requested where appropriate to mitigate against the effect of tenant defaults. Where possible, purchases are achieved at low capital values and with due investigation of tenant finances.

· Over-borrowing by the Group, insufficient credit facilities, significant interest rate increases or facility covenant breaches could represent a significant risk to the Group. In response to these risks Hansteen maintains a prudent approach to its borrowing levels by seeking to maintain sufficient headroom within its debt facilities. The Board actively monitors current debt and equity levels as well as considering the future levels of debt and equity required to sustain the business. Loan covenants are monitored and compliance certificates are prepared on a regular basis. For all money borrowed consideration is given to procuring the appropriate hedging instruments to protect against increases in interest rates.

· By investing in property in mainland Europe the Group is exposed to a foreign currency exchange rate risk. In response to this risk the Group's borrowings are in Euro denominated loan facilities and therefore, to the extent that investments are financed by debt, a self hedging mechanism is in place. In relation to the equity element of the Group's Euro investments the Board monitors the level of exposure on a regular basis and considers the level and timing of when to take out the appropriate hedging instruments to cover this exposure. There is a risk that one or more of the countries that the Group operates in leaves the Euro which may affect the nature of the Group's loans and derivatives or introduce new volatility and currency exposures for the Group to manage.

· In addition to the need to act as a responsible landlord there may, in some circumstances, be occasions when pollution on a site owned by a property investment company becomes its responsibility. Each acquisition undertaken by the Group includes an environmental report from a specialist consultancy. These reports may highlight the need for further investigation and in some cases remediation. The Group's policy is then to either undertake such investigations or remediation or potentially reject the purchase as no longer viable.

· Loss of REIT status and payment of additional corporation tax as a risk to the Group. Loss of REIT status and payment of additional corporation tax would arise from a breach of REIT compliance requirements. Breach of certain limits imposed by REIT legislation may be mitigated through regular review of the Group's actual and forecast performance against REIT regime requirements. Management have sufficient discretion to manage and meet the REIT requirements and apply mitigating actions where required.

4. 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.

5. 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 2014 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 2013.

6. 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:

*Investment properties includes those classified as held for sale on the balance sheet.

7. Other operating income

Other operating income includes £3.5 million (2013: £nil) comprising an insurance receipt relating to an investment property damaged by fire in a previous period and £3.4 million (2013: £nil) relating to the gain arising on the waiver of a loan receivable in exchange for a property portfolio in the Netherlands that the loan was secured upon.

8. Net finance costs

9. Tax on profit on ordinary activities

10. 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 (currently 20%). £2,743,000 of the cash dividend paid in the period ended 30 June 2014 is attributable to PIDs (2013: £1,877,000).

11. 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.

\* The LTIP charge of £8.4 million relates to a potential LTIP award and associated National Insurance Contributions. The charge for the potential LTIP award does not impact NAV

12. 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 per share information. Diluted EPRA EPS and Diluted EPRA NAV are included in the following tables.

13. Investment property

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). All of the Group's investment property as at 30 June 2014 is categorised as Level 3. Details of inputs used in the fair value measurement can be found in the Chairman's Interim Statement. An increase in passing rent and a decrease in discount rate would increase the valuation.

14. Investment in associates

During the period the Group redeemed £14 million of units in Hansteen UK Industrial Property Unit Trust. The Group's share of the investment remains at 33.3%. The Group invested a further £8.0m in Hansteen UK Industrial Property Unit Trust II. The Group's share of the investment remains at 33.3%. The Group made an additional £26.0 million investment in Ashtenne Industrial Fund Unit Trust, bringing the Group's holding to 36.7% (2013: 27.5%).

15. Borrowings

* The July 2018 facility is a convertible bond. The bonds may be converted into ordinary shares if the share price of an ordinary share exceeds 130% of the conversion price for a specified period, or at any time after July 2016.

Security for secured borrowings at 30 June 2014 is provided by charges on property with an aggregate carrying value of £895.1 million (31 December 2013: £744 million).

** On the £23.3 million facility expiring in December 2015 the loan to value covenant reduces to 55% at the end of 2014. On the €108.0 million facility expiring in April 2017 the loan to value covenant reduces by 2% per annum from July 2014.

Reconciliation of movement in net debt in the period

16. Share capital

The share capital comprises one class of ordinary shares carrying no right to fixed income. There are no restrictions on the size of a shareholding or the transfer of shares, except for UK REIT restrictions.

On 2 April 2014 pursuant to a placing and open offer, the Company raised gross proceeds of £47.1 million (£46.3 million net of expenses) through the issue of 44,834,877 shares at a price of 105 pence per ordinary share. On 17 April 2014 300,000 share options were exercised.

17. Notes to the cash flow statement

During the period the Group acquired a portfolio of investment properties for consideration of €106 million which was settled in part by a cash payment of €53 million and the balance by settlement of a loan due to the Group.

18. Financial instruments fair value disclosures

The table below sets out the categorisation of the financial instruments held by the Group at 30 June 2014. Where the financial instruments are held at fair value the valuation level indicates the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Valuations categorised as level 2 are obtained from third parties. If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

The Directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values.

INDEPENDENT REVIEW REPORT TO HANSTEEN HOLDINGS PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Reading, United Kingdom

26 August 2014