TIDMHSTN
RNS Number : 2183I
Hansteen Holdings plc
20 March 2018
20 March 2018
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
2017.
Financial Highlights
-- IFRS profit increased by 86.6% to GBP204.3 million (FY 2016: GBP109.5 million)
-- Normalised Total Profit of GBP107.6 million (FY 2016: GBP69.4 million) 1 2
-- Normalised Income Profit of GBP51.9 million (FY 2016: GBP64.5 million) [1] [2]
-- IFRS NAV per share of 135.1p (31 December 2016: 124.0p)
-- EPRA NAV per share of 130.6p after return of capital at 11.1p
premium to 31 December 2016 EPRA NAV of 128.9p 1
-- Full year dividend of 6.1p per share (2016: 5.9p per share)
-- Net debt to property value ratio of 27.6% (31 December 2016: 40.9%) 1
Operational Highlights
-- German and Dutch portfolio sold for GBP1.12 billion
generating a pre-tax profit of GBP49.2 million
-- GBP578.1 million returned to shareholders
-- Acquisition of Industrial Multi Property Trust PLC ("IMPT")
-- Like-for-like UK occupancy improvement of 358,000 sq ft or
29.6% of the vacant space at the start of the year 3
-- Like-for-like UK rent roll improvement of GBP2.1 million per annum 3
-- Property valuation increase of GBP62.0 million or 8.2%
-- GBP68.1 million of sales (excluding German and Dutch
portfolio) generating profits of GBP5.7 million
Post Balance Sheet Events
-- Contracts exchanged for the sale of IMPT for GBP116 million
with completion due on 26 March 2018
-- Saltley Compulsory Purchase Order ("CPO") notice irrevocably
served, completed on 13 March 2018
-- Proposed return of capital of 35p per share
Melvyn Egglenton, Chairman, commented: "The last 12 months have
been an extremely busy and successful period for Hansteen with the
three key elements of our business model working well. We have
acquired properties in a competitive market at good prices through
the corporate acquisition of IMPT, managed our assets effectively
with increases in rent, occupancy and value and finally sold a
significant part of the portfolio which realised a material amount
of capital that has been returned to shareholders. Alongside that
we have simplified the Company's Balance Sheet, settling the EUR100
million of convertible bonds.
Notwithstanding the real challenges surrounding the EU exit
process, we have not seen any negative effect on our tenants' take
up of space. E-commerce continues to enhance demand, which combined
with limited availability and little new supply is driving rental
growth. We are well positioned to continue to benefit from this
demand. Our built portfolio has a yield of 7.5% which compares with
an all-in cost of borrowing cost of 2.7%. We continue to believe
that our diverse portfolio of urban industrial and warehouse
properties presents a relatively rare opportunity in today's
property sector to achieve a combination of income and capital
growth".
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: UK Toll Number: +44
(0)203 139 4830 UK/Toll-Free Number: 0808 237 0030
Participant Pin Code: 91468179#
Webex details are as follows:
Audience URL:
https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID=e63e4cba3824e289bd3cb97bea3b035f8
Audience Password: 695800
For further details, please email Jeremy Carey at
jeremy.carey@tavistock.co.uk or Kirsty Allan at
kirsty.allan@tavistock.co.uk
For more information:
Morgan Jones/Ian Jeremy Carey/Kirsty
Watson Allan
Hansteen Holdings Tavistock Communications
PLC Tel: 020 7920 3150
Tel: 020 7408 7000 jeremy.carey@tavistock.co.uk
CHAIRMAN'S REVIEW
I am pleased to present Hansteen's results and strategic report
for the year ended 31 December 2017. We have delivered another year
of record financial results and completed several complex,
challenging and value-enhancing transactions. The Group has sold
the German and Dutch portfolio, acquired the entire issued share
capital of Industrial Multi Property Trust PLC ("IMPT"), settled
the EUR100 million of convertible bonds and returned GBP578.1
million (53.4% of the Company's capital) to our shareholders. The
UK portfolio has continued to perform strongly, enjoying a
significant valuation uplift and record occupancy levels. The high
level of activity has continued into 2018 with the sale of the IMPT
portfolio and the Saltley Compulsory Purchase Order ("CPO").
RESULTS
Hansteen's IFRS profit for the year increased by 86.6% to
GBP204.3 million (FY 2016: GBP109.5 million) which includes a
profit of GBP121.4 million from the sale of the German and Dutch
portfolio in June 2017. Despite the reduced earnings following the
European sale, the business produced Normalised Income Profits
("NIP") of GBP51.9 million (FY 2016: GBP64.5 million) and
Normalised Total Profit ("NTP") increased by 55.0% to GBP107.6
million (FY 2016: GBP69.4 million).
The Group's IFRS Net Asset Value ("NAV") was 135.1p per share at
31 December 2017 (2016: 124.0p). The Group's EPRA Net Asset Value
was 130.6p per share at 31 December 2017 (2016: 128.9p). The
comparative figure for 2016 is not a like-for-like comparison with
2017. During the year the EPRA NAV has changed as a result of:
-- The return of capital of GBP578.1 million at a premium to
December 2016 EPRA NAV of 11.1p per share
-- The settlement of the convertible bonds
-- The introduction of an accrual for the 2016 - 2018 Founder
Long Term Incentive Plan ("Founder LTIP")
-- Dividend payments of 3.7p and 2.3p during the year
Full details of these transactions are found in the Joint Chief
Executives' Review.
DIVID AND FUTURE RETURN OF CAPITAL
Following the strong financial performance of the Group during
2017 which produced record realised profits (Normalised Total
Profit), the Board is pleased to announce an increase in the full
year dividend. The interim dividend paid on 27 October 2017 was
increased to 2.3p per share (November 2016: 2.2p per share) and the
second ongoing dividend will be increased to 3.8p per share (May
2017: 3.7p per share) and will be paid on 17 May 2018. The
ex-dividend date is 5 April 2018 and the dividend is payable to
shareholders on the register at the close of business on 6 April
2018. A Property Income Distribution ("PID") of 3.7p is included in
this second interim dividend payment. The total dividends therefore
amount to 6.1p (2016: 5.9p).
Hansteen has paid a prudently progressive dividend for many
years and it is the Board's intention to maintain the policy (as
far as possible). We are currently in a period in which we have
been substantial sellers of property and as a result have been
returning capital to shareholders. Therefore, the progressive
policy will apply in proportion to any reduction in the capital
base.
As referred to above, since the year-end we have contracted to
sell the IMPT portfolio and Saltley Business Park has become the
subject of a CPO as announced on 5 February 2018 and 13 March 2018
respectively. On completion, the combined net proceeds are expected
to be at least GBP150.0 million and, with no debt to repay as the
properties were not secured, the Group's cash balance of GBP71.2
million at 31 December 2017 will rise significantly. Owing to the
current high level of demand for industrial property investments,
opportunities to reinvest these substantial cash deposits in
properties that fit the Hansteen business model are likely to be
limited. As the cash deposits would earn virtually no interest and
therefore materially dilute the returns from the business, we
consider that returning more capital is in the best interests of
all shareholders. Therefore, the Board is proposing a capital
distribution of 35p per share (GBP144.5 million) to shareholders in
the first half of 2018. More details will be contained in the
circular which will be posted to shareholders on 20 March 2018.
BOARD CHANGES
Rebecca Worthington has stepped down as non--executive Director
and Chair of the Audit Committee of the Company following her
appointment to the Board of British Land PLC. Rebecca has been a
non--executive Director of the Company since June 2014 and will
depart the Board with effect from 20 March 2018. On behalf of the
Board, I would like to thank Rebecca for her guidance in our
deliberations and her contribution and commitment to the Company's
development. We wish her the very best in her new role with British
Land Plc. As announced on 22 February 2018, the Board has appointed
Jim Clarke as an independent non--executive Director with effect
from 27 February 2018. Jim, a Chartered Accountant, has extensive
board experience of listed companies in the property and leisure
sectors and will succeed Rebecca Worthington as Chair of the Audit
Committee.
OUTLOOK
The last 12 months have been an extremely successful period for
Hansteen with the three key elements of our buy, work and sell
business model working well. We have acquired properties in a
competitive market at good prices as shown with the corporate
acquisition of IMPT, then managed our assets effectively with
increases in rent, occupancy and value and finally sold a
significant part of the portfolio through the disposal of the
German and Dutch assets. Alongside that we have returned capital to
shareholders and simplified the Company's Balance Sheet, settling
the EUR100 million of convertible bonds. In 2018 we have already
contracted to sell in excess of GBP150.0 million of property.
Notwithstanding the real challenges surrounding the EU exit
process, we have not seen any negative effect on our tenants' take
up of space. The extraordinarily broad spread of economic
activities carried out in our properties brings both resilience and
growth to our earnings. E-commerce continues to enhance demand for
UK urban industrial and logistics space and limited availability
combined with little new supply is driving rental growth. The Group
retains a portfolio of mainly UK multi-let industrial property
which is well positioned to continue to benefit from this demand.
Our built portfolio has a yield of 7.5% which compares with an
all-in cost of borrowing of 2.7%. We continue to believe that our
diverse portfolio of urban industrial and warehouse properties
presents a relatively rare opportunity in today's property sector
to achieve a combination of income and capital growth.
Melvyn Egglenton
Chairman
19 March 2018
Joint Chief Executives' REVIEW
The Hansteen business model remains unchanged and is based on
two key strengths: an opportunistic and entrepreneurial approach to
buying and selling property; and a motivated, skilled and
experienced management platform. Since incorporation in 2005 we
have acquired what we believe are the right assets at the right
prices and these high yielding industrial properties have performed
very well. Recent years have seen an increased appreciation by
investors of our type of property and the transactions that we have
completed both in 2017 and into 2018 have indicated this appetite
is continuing. We set out the full details of these transactions in
this report as we summarise what has been a very successful year
for the business.
FINANCIAL RESULTS FOR 2017
The Group's financial performance during 2017 was outstanding
and we are pleased to present another set of strong results. The
German and Dutch portfolio was sold in June 2017 for EUR1.28
billion but despite losing the annualised rent from the portfolio
of EUR93.1 million, the Normalised Income Profit ("NIP") for the
year to 31 December 2017 was GBP51.9 million (FY 2016: GBP64.5
million). NIP excludes profits or losses from the sale of
properties and valuation movements and therefore reflects the net
rental income received from the portfolio after the deduction of
costs and debt interest. Normalised Total Profits ("NTP") were
GBP107.6 million (FY 2016: GBP69.4 million). NTP comprises NIP plus
profits or losses from the sale of properties and realised profits
from one-off items.
The Board believes that these normalised profit measures (NIP
and NTP) reflect the underlying realised profits from the business
before considering property and other revaluation movements. The
table below sets out the calculation and results for NIP and NTP
with a breakdown between 'Continuing Operations', being
predominantly the UK portfolio and 'Discontinued Operations', being
the German and Dutch portfolio which was sold in June 2017.
Continuing Discontinued Total Continuing Discontinued Total
Operations Operations Operations Operations
2017 2017 2017 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------------ ------------- ------- ------------ ------------- -------
Property rental
income 59.0 35.8 94.8 34.2 75.2 109.4
Direct operating
expenses (5.0) (4.2) (9.2) (4.1) (10.6) (14.7)
Property management
fees - - - 2.0 - 2.0
Share of associates - - - 9.6 - 9.6
Administrative expenses (13.4) (4.4) (17.8) (13.7) (7.0) (20.7)
Net interest payable (9.3) (6.6) (15.9) (5.3) (15.8) (21.1)
------------------------- ------------ ------------- ------- ------------ ------------- -------
Normalised Income
Profit (NIP) 31.3 20.6 51.9 22.7 41.8 64.5
Profit on sale of
properties 5.6 49.3 54.9 3.2 1.5 4.7
Other operating
income 0.6 0.2 0.8 0.1 0.1 0.2
------------------------- ------------ ------------- ------- ------------ ------------- -------
Normalised Total
Profit (NTP) 37.5 70.1 107.6 26.0 43.4 69.4
------------------------- ------------ ------------- ------- ------------ ------------- -------
The Group uses a number of alternative performance measures
which are not defined within IFRS. The Board use these measures in
order to assess the underlying realised profits from the business
and as such these measures should be considered alongside the IFRS
measures.
The sale of the German and Dutch portfolio contributed a profit
of GBP49.2 million to the 2017 NTP. There was an additional GBP72.2
million of realised exchange gains included in the GBP204.3 million
IFRS profit (FY 2016: GBP109.5 million) of which GBP57.0 million
was previously credited to reserves in the balance sheet and
GBP15.2 million arose during 2017. Basic IFRS EPS was 28.2p (FY
2016: 14.8p) and adjusted EPS was 6.9p (FY 2016: 6.7p). Adjusted
EPS is based on EPRA EPS adjusted for the fair value of the Founder
LTIP charge as shown in note 9.
The Board regards EPRA NAV per share plus dividends as the best
measure of value growth. The Group's EPRA NAV per share at 31
December 2017 was 130.6p (31 December 2016: 128.9p). However this
year's EPRA NAV per share is not a true comparative number to last
year because in addition to deducting a dividend of 6.0p per share
we have also returned capital at an 11.1p premium per share to the
EPRA NAV per share at 31 December 2016. The 2017 EPRA NAV also
introduces an allowance for the Founder LTIP by including an
additional 13.0 million shares in the EPRA NAV per share
calculation, a dilution equivalent to 4.1p per share.
The EPRA NAV per share at 31 December 2016 was 128.9p and prior
to the return of capital in mid-November 2017, shareholders had
received two dividends of 3.7p and 2.3p per share. The return of
capital provided 140p per share for 50% of the shares, and the EPRA
NAV per share at 31 December 2017 was 130.6p, a return of 10%
during the year. Over two years the return to shareholders on the
same basis is 32%.
Further details of the financial performance and the Founder
LTIP are contained later in the Joint Chief Executives' Review and
the reconciliation of NIP and NTP to the IFRS profit before tax is
contained in note 4 to the condensed financial statements. Basic
NAV per share is reconciled to EPRA NAV per share in note 9 to the
condensed financial statements.
Sale of German and Dutch Portfolio
The German and Dutch Portfolio was sold on a debt free basis for
cash to funds advised by affiliates of the Blackstone Group L.P.
and M7 Real Estate. The value given to the properties was EUR1.28
billion which represented a premium of approximately EUR76 million
(6%) to the 31 December 2016 valuation. The scale of the
transaction required shareholder consent by way of a circular and a
Shareholders General Meeting where the sale was overwhelmingly
supported.
The net cash received by Hansteen from the sale was
approximately EUR1.276 billion after the deduction of EUR25 million
which was retained by Blackstone to satisfy 50% of the latent tax
liabilities relating to the German properties. Immediately upon
completion EUR471 million was used to repay debt secured against
the German and Dutch Portfolio and approximately EUR36 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 EUR769 million
which was partly used to settle the convertible bonds and partly
used for the return of capital as explained below.
Return of capital
The sale of the German and Dutch portfolio was in line with our
long-term business and portfolio strategy of buying at a low point
in the cycle, adding value through improved asset management and
subsequently realising the investment at a higher point in the
cycle.
After exploring various options for the method of returning the
capital, it was determined that a tender offer was the most
appropriate means of distributing the cash to shareholders. The
scale of the return of capital required shareholder approval and
again this was overwhelmingly supported by our shareholders. In
November 2017, we completed the tender offer whereby qualifying
shareholders were offered the opportunity to sell at least 1 in
every 2 shares for 140p per share. The tender offer was successful
and 412.9 million shares were purchased for a total of GBP578.1
million. The price represented a premium of 13.8% over the closing
share price on 20 March 2017 (the day before the announcement of
the proposed sale of the German and Dutch portfolio) and a premium
of 11.1p or 8.6% to the EPRA NAV per share at 31 December 2016.
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. Through a
combination of stock market purchases and valid acceptances of the
330p per share offer, Hansteen acquired all of the issued share
capital of IMPT by 23 July 2017. With a yield on the passing rent
of 9.4% and a vacancy rate of 8.2%, the acquisition represented a
good opportunity to acquire a significant amount of light
industrial property at an attractive price.
Our UK asset management team was able to increase the occupancy,
rent roll and ERV since acquisition and as a result, the portfolio
was valued at GBP109.7 million at 31 December 2017. On 5 February
2018 we announced that we had exchanged unconditional contracts to
sell the portfolio for GBP116.0 million.
PROPERTY PORTFOLIO
The built portfolio has a yield of 7.5% on the passing rent and
8.0% on the contracted rent. Including the 452 acres of undeveloped
land, the total portfolio has a yield on the passing rent of 7.0%
and a yield on the contracted rent of 7.5%. The summary analysis of
the portfolio, at 31 December 2017, is set out below:
No. Acres Built Vacant Passing Contracted Value Yield Yield
props of land area area rent rent (GBPm) on on contracted
(million (GBPm) (GBPm) passing rent
sq ft) rent
------------- ------- --------- ---------- ------- -------- ----------- -------- --------- ---------------
UK 316 - 15.9 6.4% 55.3 59.0 734.8 7.5% 8.0%
------------- ------- --------- ---------- ------- -------- ----------- -------- --------- ---------------
Belgium &
France 9 - 0.9 30.4% 2.2 2.3 31.7 7.1% 7.2%
------------- ------- --------- ---------- ------- -------- ----------- -------- --------- ---------------
Total built
portfolio 325 - 16.8 7.7% 57.5 61.3 766.5 7.5% 8.0%
============= ======= ========= ========== ======= ======== =========== ======== ========= ===============
UK Land - 452 - - - - 51.7 - -
============= ======= ========= ========== ======= ======== =========== ======== ========= ===============
Like-for-like net occupancy (measured by taking the vacant area
at the start of the year, adding vacancy on purchases and then
comparing that with the vacancy at the end of the year) has
improved in total by 255,000 sq m (2.75 million sq ft). A
significant proportion of this improvement was due to the disposal
of the vacancy contained within the German and Dutch portfolio.
However, the UK portfolio has shown a significant like-for-like
improvement of 33,297 sqm (358,410 sq ft) or 29.5% of the vacancy
at the start of the year. This achievement has come through a
combination of letting vacant space and selling vacant units, both
an important part of the Hansteen business model.
The UK portfolio finished 2017 with a record high occupancy rate
of 93.6% as occupational demand continued to outstrip supply.
Limited new developments combined with this strong demand is
driving rental growth. We have a relatively short weighted average
unexpired lease term ("WAULT") on our UK portfolio of 3.2 years
which allows this rental growth to be achieved relatively quickly
and as a result, the passing rent per let sq ft across the UK
portfolio has increased by 8.8% from GBP3.41 per sq ft at December
2016 to GBP3.71 per sq ft at 31 December 2017. The net
like-for-like improvement in passing rent for 2017 was GBP2.1
million. This like-for-like improvement is calculated by taking the
passing at the start of the year, adding rent from purchases,
deducting rent lost from sales and then comparing that with the
passing rent at the end of the year.
Our properties are extremely flexible and appeal to a large
range of occupiers. With an average rent of just under GBP20,000
per annum, we are not dependent on any particular sectors or
industries, which makes our rent roll very resilient. We have
benefited from the growth in e-commerce in recent years and
approximately a third of the 900 new lettings and renewals
completed in 2017 were to companies that trade on the internet.
Property valuation and property disposals
The value of the portfolio has increased by GBP62.0 million or
8.2% since December 2016. Despite the valuation increase, the built
portfolio has a high yield of 7.5% (passing rent divided by
value).
The sustained investor appetite for UK multi-let light
industrial property allowed for the disposal of 38 assets during
the year for a combined consideration of GBP68.1 million.
Purchasers ranged from individual owner occupiers to listed
property companies and the sales generated profits of GBP5.7
million or 9.2% above the 31 December 2016 valuation.
NET ASSET VALUE
The net assets attributable to equity shareholders at 31
December 2017 were GBP557.5 million (2016: GBP923.6 million). The
movement in IFRS net assets is summarised in the table below:
2017
GBPm
------------------------------------------- --------
Normalised Total Profit 107.6
Property revaluation 62.0
Exchange and fair value movements 5.6
Tax (9.0)
Shares issued and share based payments 97.3
Dividends paid (46.5)
Cancellation of shares under tender offer
including costs (583.1)
IFRS NAV movement (366.1)
------------------------------------------- --------
Gearing
At 31 December 2017, net debt was GBP225.4 million (31 December
2016: GBP710.1 million) and net debt to value was 27.6% (31
December 2016: 40.9%). The table below sets out the calculation of
net debt and the net debt to value ratio:
2017 2016
GBPm GBPm
---------------------------------------------------- ------ -------
Obligations under finance leases 2.5 2.6
Borrowings 297.1 712.5
Capitalised bank loan fees (3.0) (8.3)
Convertible bonds - 109.8
Convertible bonds mark-to-market - (24.0)
Cash and cash equivalents (71.2) (82.5)
---------------------------------------------------- ------ -------
Net debt 225.4 710.1
Carrying value of investment and trading properties 818.1 1,737.9
Net debt to value ratio 27.6% 40.9%
---------------------------------------------------- ------ -------
As at 31 December 2017, the Group had total bank facilities of
GBP334.1 million (31 December 2016: GBP771.1 million), of which
GBP297.1 million were drawn (31 December 2016: GBP712.5 million).
Borrowings are in the same currency as the assets against which
they are secured. Cash resources at the year-end were GBP71.2
million (31 December 2016: GBP82.5 million). The weighted average
debt maturity, at 31 December 2017, was 3.6 years and the weighted
average maturity of hedging was 3.6 years.
Analysis of the Group's bank loan facilities at 31 December 2017
is set out below:
Lender Facility Amount Unexpired All-in-interest Loan to Interest
undrawn term rate value cover
millions millions years covenant covenant
------------------------ ----------- ----------- ---------- ---------------- ---------- ----------
BNP Paribas Fortis GBP4.1 - 5.6 1.5% - -
Royal Bank of Scotland GBP330.0 GBP37.0 3.6 2.7% 55% 2.00:1
------------------------ ----------- ----------- ---------- ---------------- ---------- ----------
Total facilities GBP334.1 GBP37.0 3.6 2.7%
------------------------ ----------- ----------- ---------- ---------------- ---------- ----------
In addition to the bank loan facilities, the Group has a GBP2.5
million finance lease in place to fund a property in Belgium. As at
31 December 2017, the lease had an unexpired term of five years and
an interest rate implicit in the lease of 2.8%.
As at 31 December 2017, the Group had borrowings including
obligations under finance leases, of GBP299.6 million (31 December
2016: GBP816.6 million, which also included the convertible bond)
of which GBP150.0 million was swapped at an average rate of 0.53%
and GBP50.0 million was capped at an average rate of 0.75%. The
average all-in borrowing rate for the Group, at 31 December 2017,
was 2.7% (31 December 2016: 3.2%).
Convertible Bond
In June 2017 Hansteen offered to buy and/or convert the EUR100
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 the shares were issued on 10 July 2017. Further
details on the convertible bonds are shown in note 13 of the
condensed financial statements.
Currency
Following the sale of the German and Dutch portfolio during
2017, the Group's exposure to changes in the Euro/GBP exchange rate
is now significantly reduced. As such, the Board has decided not to
renew the options that were hedging a total of EUR67.5 million of
net euro income which expired during the year. Hansteen reports its
results in sterling and as at 31 December 2017, approximately 8.9%
(GBP49.6 million or EUR56.0 million) of the Group's net assets were
denominated in euros.
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 shares in issue at the end of the performance period. The
current performance period runs from 1st January 2016 to 31st
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 returns so far are ahead of the target levels. There is a
further 12 months to go and therefore the potential awards can only
be estimated at this stage and is dependent on the performance in
the final year.
The calculation of performance in the current period has been
materially affected by the tender offer of November 2017 and as
explained in the return of capital circular and in the Remuneration
Committee report, the Founder LTIP calculation will be adjusted and
measured over two periods, being pre and post the return of capital
date of 14 November 2017.
EPRA NAV per share includes the impact of dilutive shares and
dilution is required only to the extent that the results to date
have exceeded the full target to 31 December 2018. Under this
methodology the accrual to 31 December 2017 is 6.5 million shares
to each of the Joint Chief Executives. As the full three year
hurdle has been met by 31 December 2017, the value of the awards
will increase by 25% of all additional returns made in 2018.
The IFRS pre-tax profit includes a charge of GBP19.1 million
related to the potential Founder LTIP awards and associated
National Insurance contribution. Only the effect of the associated
National Insurance contributions on the Founder LTIP awards affects
the NAV because, in accordance with IFRS, the charge for the
potential Founder LTIP awards excluding the associated National
Insurance contribution is credited back through equity.
PERFORMANCE AND OUTLOOK
Performance
Hansteen's performance measured by GBP100 invested at the time
of the Company's IPO in 2005 ranks fourth out of the 120 property
companies publicly quoted at the time. The companies who produced a
better performance over that period were Shaftesbury, Derwent
London and Great Portland Estates. Interestingly their performance
numbers appear to have peaked several years ago whereas ours have
become stronger more recently reflecting the fact that regional
urban industrial properties are late cycle performers.
Another feature of Hansteen's performance is that a large
proportion of the Company's return is realised.
Since IPO Hansteen has raised GBP717.9 million (including the
convertible bonds) and following the GBP144.5 million planned later
this year we will have returned GBP722.4 million. We have also paid
dividends (and convertible interest) since IPO of GBP323.5 million.
The NAV of the remaining business will be c.GBP414 million.
For much of the life of Hansteen and its predecessor company,
Ashtenne, the type of properties in which we specialise, regional
urban industrial and logistics properties have been unfashionable
with low rents and capital values and high yields. Over the last
couple of years, it has become clear that occupational demand for
our kind of properties is materially outstripping supply and rents
have started to significantly grow. As a result, a broad and deep
collection of investors have put our kind of properties on their
shopping list. This positive dynamic is of course good for
Hansteen's existing portfolio. However, it does mean that acquiring
further properties that fit our business model will be
challenging.
Owning a stabilised diversified portfolio of urban industrial
and logistics properties with a robust and growing rent roll is a
strong investment. However, we believe in our buy, work and sell
business model and expect to continue to realise investments as
they mature. This will bring new management challenges. Following
the IMPT sale and Saltley CPO and not with-standing the potential
further return of capital, we intend to retain meaningful firepower
to enable us to make acquisitions if we deem them value-enhancing.
However, if we cannot find acquisitions that fit our criteria, we
will probably continue to return capital.
Outlook
There are two market dynamics that are relevant to Hansteen.
Firstly, there is tenant demand as this governs the strength and
sustainability of our rent rolls. Secondly there is investor demand
as this influences our buying and selling activity.
With regard to tenant demand, for a sustained period, all of the
UK Hansteen offices have been reporting high levels of occupier
enquiries and take up which our asset management team have
translated into increases in like-for-like passing rent and
like-for-like occupancy. Limited availability and little new supply
is driving rental growth in all UK regions. With a low average let
rent of GBP3.71 per sq ft, new urban logistics development is
unlikely until rents and capital values rise further. Our portfolio
is therefore well placed to benefit.
With regard to investor demand, we believe that our sector of
commercial property is the only one where values today are still
lower than they were prior to the global financial crisis in 2008
and new buyers are emerging in our subsector of the market. The
challenge is therefore the difficulty of buying portfolios at
prices reflecting our business model. The benefit however, is a
deeper and appreciative market in our subsector for us to sell in
to.
Ian Watson Morgan Jones
Joint Chief Executives
19 March 2018
Principal Risks AND UNCERTAINTIES
The Board recognises that effective risk management is essential
to Hansteen 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.
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 current key risks identified by the Board, their potential
impact and the steps taken to mitigate them are presented
below.
Principal Cause Impact Probability Risk Management
Risk
---------------------- --------------------- ------- ------------ -----------------------------------------
Over reliance High dependence High Medium The Board believes such risk
on key executives. on Joint is to some extent mitigated
Chief Executives. through the appointment and
support of high calibre employees
and professional advisors.
All such appointments are approved
by a member of the Board and
performance is monitored regularly.
Significant Recession High Low Whilst there is always a risk
tenant failure. and reduced that recession or new legislation
profitability. may affect specific industry
types, the Board is satisfied
that Hansteen's exposure is
mitigated by operating with
an extremely diverse tenant
base without reliance on any
particular tenants or industries.
Vacancy rates, arrears and
bad debts are monitored on
a regional basis with trends
investigated to determine any
systematic problems with a
portfolio or type of tenant.
Lack of availability Banks under High Medium The Board acknowledge that
of capital. internal there may be occasions when
pressure banks are under internal pressures
to improve which may conflict with existing
liquidity. financing arrangements and
Banks considering it may prove more difficult
unutilised to secure the more challenging
loans too properties. Detailed due diligence
expensive. is carried out prior to the
purchase of each property.
Regular meetings are held with
a portfolio of banks to keep
them fully appraised of commercial
opportunities and alert to
any potential issues early
on. Hansteen also considers
alternative sources of finance
to develop its strategy and
reduce exposure.
Information Failure to High Medium The Board believes this risk
and cyber protect information to be mitigated to some extent
security breaches and information by the Group outsourcing much
resulting systems from of its day-to-day processing
in data leakage, unauthorised to reputable third party organisations.
financial access, misuse, Due diligence designed to assess
loss, reputational disruption, the integrity of third party
damage or modification processes and systems is undertaken
business disruption. or destruction. by management as part of the
tendering and appointment process
and is maintained on an on-going
basis. Internally, the Group
has developed policies and
procedures designed to mitigate
information and cyber security
risk as far as possible, these
include: the secure encryption
of all payroll and personal
data, rigorous use of passwords
and firewall defences, externally
facilitated staff training
programmes, bulletins to raise
risk awareness and encourage
good practice, development
of secure mobile working policies,
incident response and disaster
recovery procedures and the
establishment of anti-malware
defences.
Poor return Over paying High Low Supply and demand is reviewed
on investment for an acquisition. continuously through direct
and deterioration Prices driven information from Hansteen's
in operating up by increased network of managing agents
results. competition. and managers. Experienced members
Reduced number of management review each acquisition
of investment and due diligence is carried
opportunities. out by external parties. The
Board is required to approve
all acquisitions and disposals
over a prescribed amount.
Banking counterparty Financial Medium Medium The Board believes such risks
disruption. difficulties are reduced by adherence to
Lack of liquidity. at institutions a Cash and Liquidity Management
holding significant Policy that sets out how funds
deposits. can be invested. Cash balances
and borrowings are maintained
with a portfolio of considered
counterparties. The Group Treasurer
reviews the cash balances on
a daily basis, and where possible,
surplus cash is put on interest
bearing deposit.
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.
This year our summer internship programme provided opportunities
for a number of students to join the teams in our regional offices
and gain hands-on experience in many aspects of Asset Management.
Hansteen recruited six paid interns across the United Kingdom
offering them the chance to work closely with our experienced
members of staff. The scheme is designed to offer the interns a
comprehensive view of asset management so that their learning
experience as well as their employability after graduation is
enhanced.
In 2017, we utilised a variety of recruitment sources so that we
could widen our appeal to female applicants and this resulted in a
record number of female interns.
Hansteen continues to support the interns from previous years'
intakes who secured permanent jobs as Graduate Surveyors. By
sponsoring their development, Hansteen has helped four people to
successfully complete their Assessment of Professional Competence
("APC"). The APC gives the interns the practical training and
experience which, when combined with academic qualifications leads
to full RICS membership. This sponsorship involves providing the
interns with peer-to-peer learning, workshops, senior mentorship
and mock interview panels. We expect a further five staff to
qualify in 2018.
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
three 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 board room 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 2017, the composition of Hansteen's employees,
including both Executive and Non-Executive Directors, was as
follows:
Number
Percentage
Male
Female Male Female
-------------------------- ------------------------------------------------------ ----------- ------- ---------
Directors - including
Non-Executive Directors 5 2 71 29
Senior managers 4 2 69 31
All other staff 37 33 53 47
-------------------------- ------------------------------------------------------ ----------- ------- ---------
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 2017. Certain parts of the Annual Report are not included
in this announcement, as described in note 1.
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 and the Joint Chief Executives'
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
19 March 2018
Consolidated income statement for the year ended 31 December
2017
Group Group
2017 2016[3]
Note GBPm GBPm
------------------------------------------------- ---- ------ -------
Continuing operations
Revenue 3 59.0 37.4
Cost of sales 3 (5.3) (5.2)
------------------------------------------------- ---- ------ -------
Gross profit 3 53.7 32.2
Administrative expenses (32.5) (14.1)
Other operating income 6 0.6 0.1
Share of results of associates and profit
on sale of associate - 13.4
Negative goodwill and other gains - 4.3
Profit on sale of investment properties 5.9 2.4
Fair value gains on investment properties 12 62.0 15.4
Operating profit 89.7 53.7
Finance income 4.3 14.8
Finance costs (23.7) (20.4)
Profit before tax 70.3 48.1
Tax 7 0.8 (0.1)
------------------------------------------------- ---- ------ -------
Profit for the year from continuing operations 71.1 48.0
Profit for the year from discontinued operations
net of tax 10 133.2 61.5
------------------------------------------------- ---- ------ -------
Profit for the year 204.3 109.5
------------------------------------------------- ---- ------ -------
Attributable to:
Equity holders of the parent 204.1 109.5
Non-controlling interests 0.2 -
------------------------------------------------- ---- ------ -------
204.3 109.5
------------------------------------------------- ---- ------ -------
Earnings per share
Basic
Continuing operations 9 9.8p 6.5p
Discontinued operations 9 18.4p 8.3p
------------------------------------------------- ---- ------ -------
28.2p 14.8p
Diluted
Continuing operations 9 9.7p 6.4p
Discontinued operations 9 18.1p 7.4p
------------------------------------------------- ---- ------ -------
27.8p 13.8p
------------------------------------------------- ---- ------ -------
Consolidated statement of comprehensive income for the year
ended 31 December 2017
Group Group
2017 2016
GBPm GBPm
------------------------------------------------------ ------ -----
Profit for the year after tax 204.3 109.5
Other comprehensive (expense)/income:
Exchange differences arising on translating
foreign operations 15.2 72.9
Exchange differences recycled to the income
statement on disposal of subsidiaries - (2.3)
Exchange differences recycled to the income
statement on disposal of discontinued operations (72.2) -
Total other comprehensive (expense)/income
for the year (57.0) 70.6
------------------------------------------------------- ------ -----
Total comprehensive income for the year 147.3 180.1
------------------------------------------------------- ------ -----
Attributable to:
Equity holders of the parent 147.1 180.0
Non-controlling interests 0.2 0.1
------------------------------------------------------- ------ -----
147.3 180.1
------------------------------------------------------ ------ -----
All components of other comprehensive income may be recycled to
profit and loss.
Balance sheet as at 31 December 2017
Group Group
2017 2016
Note GBPm GBPm
-------------------------------------- ---- ------- -------
Non-current assets
Property, plant and equipment 0.2 0.4
Investment property 12 694.2 1,717.5
Deferred tax asset - 0.6
Derivative financial instruments 2.2 2.1
-------------------------------------- ---- ------- -------
696.6 1,720.6
Current assets
Investment properties held for sale 12 113.9 10.4
Trading properties 10.0 10.0
Trade and other receivables 18.3 31.1
Cash and cash equivalents 71.2 82.5
-------------------------------------- ---- ------- -------
213.4 134.0
-------------------------------------- ---- ------- -------
Total assets 910.0 1,854.6
-------------------------------------- ---- ------- -------
Current liabilities
Trade and other payables (30.4) (54.0)
Current tax liabilities (20.5) (6.6)
Borrowings 13 (0.3) (20.5)
Obligations under finance leases (0.2) (0.2)
Provisions - (0.1)
-------------------------------------- ---- ------- -------
(51.4) (81.4)
Non-current liabilities
Borrowings 13 (293.8) (793.5)
Obligations under finance leases (2.3) (2.4)
Provisions (0.8) (0.7)
Derivative financial instruments - (4.3)
Deferred tax liabilities (4.2) (48.1)
-------------------------------------- ---- ------- -------
(301.1) (849.0)
-------------------------------------- ---- ------- -------
Total liabilities (352.5) (930.4)
-------------------------------------- ---- ------- -------
Net assets 557.5 924.2
-------------------------------------- ---- ------- -------
Equity
Share capital 41.3 74.6
Share premium 114.5 114.5
Other reserves (0.1) (1.9)
Capital redemption reserves 41.3 -
Translation reserves 4.8 61.8
Retained earnings 355.7 674.6
-------------------------------------- ---- ------- -------
Equity attributable to equity holders
of the parent 557.5 923.6
Non-controlling interest - 0.6
-------------------------------------- ---- ------- -------
Total equity 557.5 924.2
-------------------------------------- ---- ------- -------
The financial statements of Hansteen Holdings PLC, registered
number 05605371, were approved by the Board of Directors and
authorised for issue on 19 March 2018.
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
2017
Group Capital
Share Share Other Translation redemption Retained Non-controlling
capital premium reserves reserves reserves earnings Total interest Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ -------- -------- -------- ----------- ---------- -------- ------- --------------- -------
Balance at 1
January
2016 72.2 114.5 (1.4) (8.7) - 629.6 806.2 0.5 806.7
Shares issued 2.4 - - - - - 2.4 - 2.4
Dividends - - - - - (39.8) (39.8) - (39.8)
Share-based
payments - - - - - (24.7) (24.7) - (24.7)
Share options
exercised - - 0.2 - - - 0.2 - 0.2
Purchase of own
shares - - (0.7) - - - (0.7) - (0.7)
Profit for the
year - - - - - 109.5 109.5 - 109.5
Other
comprehensive
income for the
year - - - 70.5 - - 70.5 0.1 70.6
Balance at 31
December
2016 74.6 114.5 (1.9) 61.8 - 674.6 923.6 0.6 924.2
Shares
issued/settlement
of convertible
bond 8.0 - (0.3) - - 91.4 99.1 - 99.1
Cancellation of
shares under
tender
offer (41.3) - - - 41.3 (583.1) (583.1) - (583.1)
Non-controlling
interest disposed - - - - - - - (0.1) (0.1)
Capital repaid - - - - - - - (0.2) (0.2)
Dividends - - - - - (46.5) (46.5) (0.5) (47.0)
Share-based
payments - - - - - 18.0 18.0 - 18.0
Share options
exercised - - 2.8 - - (2.8) - - -
Purchase of own
shares - - (0.7) - - - (0.7) - (0.7)
Profit for the
year - - - - - 204.1 204.1 0.2 204.3
Other
comprehensive
expense for the
year - - - (57.0) - - (57.0) - (57.0)
------------------ -------- -------- -------- ----------- ---------- -------- ------- --------------- -------
Balance at 31
December
2017 41.3 114.5 (0.1) 4.8 41.3 355.7 557.5 - 557.5
------------------ -------- -------- -------- ----------- ---------- -------- ------- --------------- -------
Cash flow statement for the year ended 31 December 2017
Group Group
2017 2016
Note GBPm GBPm
------------------------------------------------------ ---- ---------- -------
Net cash inflow from operating activities 14 45.2 48.0
Investing activities
Interest received 0.4 0.1
Dividends received - -
Acquisition of subsidiary undertakings (24.6) (38.1)
Share premium returned by subsidiaries - -
Investments in associates - (10.2)
Proceeds from sale of subsidiaries 662.9 -
Additions to property, plant and equipment - (0.2)
Additions to investment properties - continuing
operations (7.1) (6.4)
Additions to investment properties - discontinued
operations (28.4) (14.8)
Proceeds from sale of investment properties
- continuing operations 60.6 10.4
Proceeds from sale of investment properties
- discontinued operations 7.4 15.5
Distributions received from associates - 22.4
Net cash generated from/(used in) investing
activities 671.2 (21.3)
Financing activities
Dividends paid (47.0) (39.8)
Settlement of liabilities in respect of
2015 Founder LTIP - (23.5)
Cost of issuing shares (0.1) -
Own shares acquired (0.7) (0.7)
Cancellation of shares under tender offer (583.1) -
Repayments of obligations under finance
leases (0.2) (0.2)
New borrowings raised (net of expenses)
- continuing operations 119.8 292.0
New borrowings raised (net of expenses)
- discontinued operations 0.2 117.2
Bank loans repaid - continuing operations (212.4) (233.7)
Bank loans repaid - discontinued operations (4.0) (121.0)
Additions to derivative financial instruments (0.1) (3.2)
(Settlement)/proceeds on disposal of derivative
financial instruments (4.0) 0.5
Net cash (used in) financing activities (731.6) (12.4)
------------------------------------------------------ ---- ---------- -------
Net (decrease)/ increase in cash and cash
equivalents (15.2) 14.3
Cash and cash equivalents at beginning
of year 82.5 63.4
Effect of changes in foreign exchange
rates 3.9 4.8
------------------------------------------------------ ---- ---------- -------
Cash and cash equivalents at end of year 71.2 82.5
------------------------------------------------------ ---- ---------- -------
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 condensed 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 2017 or 2016, but is derived from those
accounts. Statutory accounts for 2016 have been delivered to the
Registrar of Companies and those for 2017 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 2017.
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 2017. Their
adoption has not had any material impact on the disclosures or on
the amounts reported in these financial statements.
Amendments to IAS 7 Disclosure Initiative
Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised
Losses
Annual Improvements to IFRSs: 2014-2016 Annual Improvements to IFRSs
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:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
IFRS 2 (amendments) Classification and Measurement of Share-based
Payment Transactions
IAS 40 (amendments) Transfers of Investment Property
Annual improvements to IFRS 2014 -2016 Cycle Amendments to IFRS 1 First-time Adoption of
International
Financial Reporting Standards and IFRS 28
Investments
in Associates and Joint Ventures
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
IFRIC 22 Foreign Currency Transactions and Advance
Consideration
IFRIC 23 Uncertainty over Income Tax Treatments
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective for the
current accounting period. Certain standards which could be
expected to have an impact on the financial statements are
discussed in further detail below.
Title of IFRS 9 Financial Instruments
standard
----------------- --------------------------------------------------------------------
Nature of IFRS 9 will replace IAS 39 and addresses the classification,
change measurement and recognition of financial assets and
financial liabilities. It simplifies the existing categories
of financial instruments, introduces an expected credit
loss model and redefines the criteria required for hedge
effectiveness.
----------------- --------------------------------------------------------------------
Impact On adoption of the new standard, these changes are not
expected to have a material impact on the consolidated
financial statements of the Group. There will however
be limited changes to presentation and disclosure.
----------------- --------------------------------------------------------------------
Date of adoption Mandatory for financial years commencing on or after
by Group 1 January 2018. The Group will apply the new rules retrospectively
from 1 January 2018, with the practical expedients permitted
under the standard. Comparatives for 2018 are not expected
to be restated.
----------------- --------------------------------------------------------------------
Title of IFRS 15 Revenue from Contracts with Customers
standard
----------------- -----------------------------------------------------------------
Nature of IFRS 15 combines and replaces a number of previous standards,
change setting out a five step model for the recognition of
revenue based on the principle that revenue is recognised
when control of a good or service transfers to a customer.
The standard also establishes principles for reporting
useful information to users of financial statements
about the nature, amount, timing and uncertainty of
revenue and cash flows. The standard permits either
a full retrospective or a modified retrospective approach
for the adoption.
----------------- -----------------------------------------------------------------
Impact Management has assessed the effects of applying the
new standard on the consolidated financial statements.
Revenue recognition
IFRS 15 does not apply to investment property rental
income as this falls under the scope of IAS 17 Leases.
The standard will apply to non-core revenue streams;
service charge income, trading property sales and management
fees. At present the Group does not estimate IFRS 15
to have a significant difference in the amount or timing
of the recognition of revenue for the non-core income
streams that fall under the scope and an immaterial
impact on the Group Income Statement.
Disclosures
The new standard also introduces expanded disclosure
requirements. These are expected to change the nature
and extent of the Group's revenue disclosures.
Date of adoption Mandatory for financial years commencing on or after
by Group 1 January 2018. The Group intends to adopt the standard
using the modified retrospective approach which means
that the cumulative impact of the adoption will be recognised
in retained earnings as of 1 January 2018 and that comparatives
will not be restated.
----------------- -----------------------------------------------------------------
Title of IFRS 16 Leases
standard
----------------- ------------------------------------------------------------------
Nature of IFRS 16 will replace IAS 17 Leases, and will require
change the application of a single lessee accounting model.
It will result in almost all leases being recognised
on the balance sheet for a lessee, as the distinction
between operating and finance leases is removed. Under
the new standard, an asset (the right to use the leased
item) and a financial liability, to pay future rental
payments, are recognised. The only exceptions are short-term
and low-value leases. The accounting for lessors will
not significantly change.
----------------- ------------------------------------------------------------------
Impact At present, as a lessee the Group holds a limited number
of operating leases, with the undiscounted non-cancellable
future lease payments as 31 December 2017 of GBP22.7
million.
In order to quantify the impact of IFRS 16, management
is required to make judgements on a lease-by-lease basis
including, but not limited to:
* The appropriate discount rate (by reference to the
interest rate implicit in the lease, or the Group's
incremental borrowing rate);
* The lease term, including consideration of options to
extend; and
* Index or rate dependent variable payments that could
be included in the calculation of the lease
liability.
Beyond the information above, it is not practicable
to provide a reasonable estimate of the effect of these
standards until a detailed lease-by-lease review has
been completed.
----------------- ------------------------------------------------------------------
Date of adoption Mandatory for financial years commencing on or after
by Group 1 January 2019. At this stage, the Group does not intend
to adopt the standard before its effective date. The
Group intends to apply the simplified transition approach
and will not restate comparative amounts for the year
prior to first adoption.
----------------- ------------------------------------------------------------------
3. Revenue and cost of sales
An analysis of the Group's revenue and cost of sales is as
follows:
Group Group
2017 20161
Continuing operations GBPm GBPm
----------------------------------------------------- ----- -----
Investment property rental income 59.0 34.2
Trading property sales - 1.2
Property management fees - 2.0
------------------------------------------------------ ----- -----
Revenue 59.0 37.4
Direct operating expenses relating to investment
properties that generated rental income (4.8) (3.7)
Direct operating expenses relating to investment
properties that did not generate rental income (0.2) (0.4)
------------------------------------------------------ ----- -----
Direct operating expenses (5.0) (4.1)
Cost of sales of trading properties (0.3) (1.1)
Cost of sales (5.3) (5.2)
------------------------------------------------------ ----- -----
Gross profit 53.7 32.2
------------------------------------------------------ ----- -----
Including interest income of GBP0.3 million (2016(1) : GBP0.1
million), total revenue was GBP59.3 million (2016(1) : GBP37.5
million).
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.
Group 2017 20161
Continuing Discontinued Continuing Discontinued Share
operations operations Total operations operations of associates Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----------- ------------ ------ ----------- ------------ -------------- ------
Investment property rental
income 59.0 35.8 94.8 34.2 75.2 17.3 126.7
Direct operating expenses (5.0) (4.2) (9.2) (4.1) (10.6) (2.4) (17.1)
Property management fees - - - 2.0 - - 2.0
Administrative expenses (13.4) (4.4) (17.8) (13.7) (7.0) (2.2) (22.9)
Net interest payable (9.3) (6.6) (15.9) (5.3) (15.8) (3.1) (24.2)
-------------------------------- ----------- ------------ ------ ----------- ------------ -------------- ------
Normalised Income Profit 31.3 20.6 51.9 13.1 41.8 9.6 64.5
Profit on sale of investment
properties 5.9 0.1 6.0 2.4 1.5 0.7 4.6
(Loss)/profit on sale
of trading properties (0.3) - (0.3) 0.1 - - 0.1
Total profits on sale
of properties 5.6 0.1 5.7 2.5 1.5 0.7 4.7
Other operating income 0.6 0.2 0.8 0.1 0.1 - 0.2
Profit on disposal of
discontinued operations - 49.22 49.2 - - - -
-------------------------------- ----------- ------------ ------ ----------- ------------ -------------- ------
Normalised Total Profit 37.5 70.1 107.6 15.7 43.4 10.3 69.4
Negative goodwill and
other gains - - - 4.3 - 1.0 5.3
Acquisition and reorganisation
costs - - - (0.1) - - (0.1)
Founder LTIP charge (19.1) - (19.1) - - - -
Impairment of goodwill - - - (0.3) - - (0.3)
Change in fair value of
investment properties 62.0 - 62.0 15.4 28.0 2.4 45.8
Change in fair value of
currency options - - - (9.3) - - (9.3)
Change in fair value of
interest rate swaps and
caps 0.5 0.7 1.2 1.2 0.4 (0.3) 1.3
Change in fair value of
convertible bonds (12.1) - (12.1) (2.3) - - (2.3)
Fees incurred on conversion
of convertible bonds (0.4) - (0.4) - - - -
Interest incurred on the
convertible bond (1.6) - (1.6) (3.4) - - (3.4)
Foreign exchange gains 3.5 - 3.5 13.5 - - 13.5
Exchange differences recycled
on disposal of discontinued
operations - 72.22 72.2 - - - -
Profit before tax 70.3 143.0 213.3 34.7 71.8 13.4 119.9
Tax 0.8 (9.8) (9.0) (0.1) (10.3) - (10.4)
-------------------------------- ----------- ------------ ------ ----------- ------------ -------------- ------
Profit for the year 71.1 133.2 204.3 34.6 61.5 13.4 109.5
-------------------------------- ----------- ------------ ------ ----------- ------------ -------------- ------
Administrative expenses for 2017, as presented in Normalised
Income Profit, exclude a charge of GBP19.1 million relating to the
Founder LTIP for the 3 year period ending 31 December 2018 (2016:
nil). Further details are set out in note 15.
The GBP9.3 million change in fair value of foreign currency
derivatives in 2016 relates to options to hedge European net
assets. The hedges expired in June 2016 and were not replaced.
The interest incurred on the conversion of convertible bonds of
GBP1.6 million (2016: GBP3.4 million) was excluded from the net
interest payable in NIP as this expense is not recurring.
During 2016, the Group acquired the remaining 50% of the units
in the Hansteen Saltley Unit Trust for a net price of GBP9.3
million, taking its ownership to 100% and resulting in a gain on
business combination of GBP0.4 million. The Group also acquired the
remaining 18.2% of Ashtenne Industrial Fund Unit Trust for a net
price of GBP39.5 million, taking its ownership to 100% and
resulting in a gain on business combination of GBP3.9 million. The
Group's investments in Hansteen Saltley Unit Trust and Ashtenne
Industrial Fund Unit Trust are now consolidated. The remaining
negative goodwill and other gains of GBP1.0 million relates to a
gain recognised upon acquiring further units in the Ashtenne
Industrial Fund Unit Trust while it continued to be classified as
an associate.
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.
Group Revenue Result Revenue Result
2017 2017 20161 2016(1)
Continuing operations GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------ ------- -------
Belgium 1.1 0.9 1.1 0.9
France 1.4 2.3 1.6 1.5
UK 56.5 50.5 34.7 29.8
-------------------------------------------- ------- ------ ------- -------
Total segment result 59.0 53.7 37.4 32.2
Administrative expenses (32.5) (14.1)
Other operating income 0.6 0.1
Share of results of associates and
profit on sale of associate - 13.4
Negative goodwill and other gains - 4.3
Changes in fair value of investment
properties by segment:
Belgium (2.9) -
France (1.1) 0.2
UK 66.0 15.2
-------------------------------------------- ------- ------ ------- -------
Total changes in fair value of investment
properties 62.0 15.4
Profit on disposal of investment properties 5.9 2.4
-------------------------------------------- ------- ------ ------- -------
Total gains on investment properties 67.9 17.8
-------------------------------------------- ------- ------ ------- -------
Operating profit 89.7 53.7
Net finance costs (19.4) (5.6)
-------------------------------------------- ------- ------ ------- -------
Profit before tax 70.3 48.1
-------------------------------------------- ------- ------ ------- -------
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.
2017
Group Additions
to Non-
Investment Trading Total Other Total investment current
properties* properties properties assets Assets properties assets
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
Belgium 14.5 - 14.5 1.8 16.3 - 14.5
France 17.2 - 17.2 0.6 17.8 0.1 17.2
UK 776.4 10.0 786.4 33.7 820.1 95.8 662.6
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
Total segment
assets 808.1 10.0 818.1 36.1 854.2 95.9 694.3
Unallocated assets 55.8 2.3
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
Total assets 910.0 696.6
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
* Includes investment properties held for sale.
2016
Group Additions
to Non-
Investment Trading Total Other Total investment current
properties* properties properties assets Assets properties assets
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
Belgium 17.0 - 17.0 2.3 19.3 0.3 17.0
France 17.7 - 17.7 0.6 18.3 0.7 17.7
Germany 761.7 - 761.7 29.4 791.1 11.7 754.8
Netherlands 264.7 - 264.7 7.4 272.1 3.1 265.0
UK 666.8 10.0 676.8 40.4 717.2 480.0 664.0
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
Total segment
assets 1,727.9 10.0 1,737.9 80.1 1,818.0 495.8 1,718.5
Unallocated assets 36.6 2.1
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
Total assets 1,854.6 1,720.6
------------------- ------------ ----------- ----------- ------- ------- ----------- --------
* Includes investment properties held for sale.
6. Other operating income
In 2017, other operating income includes GBP0.5 million of
insurance receipts and GBP0.1 million relating to a forfeited
deposit on an exchange which did not complete.
In 2016, other operating income includes GBP0.1 million of
insurance receipts.
7. Tax
Group Group
2017 2016(1)
Continuing operations GBPm GBPm
-------------------------------------------- ----- -------
UK current tax
Credit in respect of prior years - (0.5)
On net income of the current year (0.8) -
Foreign current tax
On net income of the current year 0.6 -
Total current tax (0.2) (0.5)
Deferred tax in respect of prior years - (0.1)
Deferred tax in respect of the current year (0.6) 0.7
--------------------------------------------- ----- -------
Total tax (credit)/charge (0.8) 0.1
--------------------------------------------- ----- -------
UK Corporation tax is calculated at 19.25% (2016: 20.00%) 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 GBP2.1 million tax charge relating to ordinary profits
arising on the discontinued operations and a GBP7.7 million tax
charge arising on the profit on disposal of discontinued operations
as disclosed in note 10.
1 Re-presented to classify the German and Dutch portfolio as
discontinued operations
The tax (credit)/charge for the year can be reconciled to the
profit per the income statement as follows:
Group Group
2017 2016
Continuing operations GBPm GBPm
--------------------------------------------- ------ -----
Profit before tax 70.3 48.1
Tax at the UK corporation tax rate of 19.25%
(2016: 20.00%) 13.5 9.6
Tax effect of:
UK tax not payable due to REIT exemption (19.5) (7.5)
Deferred tax assets not recognised 4.5 1.5
Effect of different tax rates in overseas
subsidiaries 0.1 0.3
Income that is not in taxable profit - (2.7)
Expenses that are not deductible in taxable
profit 0.7 -
Change in deferred tax due to change in tax
rate (0.1) (0.5)
Adjustment in respect of prior years - (0.6)
Tax (credit)/charge for the year (0.8) 0.1
---------------------------------------------- ------ -----
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
Group Group
2017 2016
GBPm GBPm
------------------------------------------------ ----- -----
Amounts recognised as distributions to equity
holders in the period:
Second dividend for the year ended 31 December
2016 of 3.7p (2016: 3.15p) per share 27.5 23.4
Interim dividend for the year ended 31 December
2017 of 2.3p (2016: 2.2p) per share 19.0 16.4
------------------------------------------------- ----- -----
46.5 39.8
------------------------------------------------ ----- -----
Amounts not recognised as distributions to
equity holders in the period:
Proposed second dividend for the year ended
31 December 2017 of 3.8p (2016: 3.7p) per
share 15.7 27.5
------------------------------------------------- ----- -----
As a REIT, the Company is required to pay Property Income
Distributions ("PIDs") equal to at least 90% of the Group's
exempted net income, after deduction of withholding tax at the
basic rate of 20% (2016: 20%). GBP32.9 million of the dividends
paid during the year ended 31 December 2017 is attributable to PIDs
(2016: GBP24.2 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 is reconciled to the IFRS
measure 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 Income
Profit have been defined in note 4 and adjusted EPS is defined
below.
Group 2017 2016
Weighted Weighted
average average
number Earnings number Earnings
of per of per
Earnings shares share Earnings shares share
Continuing operations GBPm m pence GBPm m pence
------------------------------------ -------- -------- -------- -------- -------- --------
Normalised Income Profit (see
note 4) 31.3 725.1 4.3 22.7 740.0 3.1
Normalised Total Profit (see
note 4) 37.5 725.1 5.2 26.0 740.0 3.5
Basic EPS 70.9 725.1 9.8 48.0 740.0 6.5
Adjustments:
Mark to market value of convertible
bonds - (14.9)
Foreign exchange on convertible
bonds - 17.3
Interest charged in period
on convertible bonds - 3.3
Dilutive shares relating to
convertible bonds - 92.8
Dilutive shares relating to
the profit share scheme 2.8 2.3
Dilutive shares relating to
the Founder LTIP 6.4 -
------------------------------------ -------- -------- -------- -------- -------- --------
Diluted EPS 70.9 734.3 9.7 53.7 835.1 6.4
Basic EPS 70.9 725.1 9.8 48.0 740.0 6.5
Adjustments:
Revaluation gains on investment
properties (62.0) (15.4)
Profit on the sale of investment
properties (5.9) (2.4)
Impairment of goodwill - 0.3
Profit on sale of trading
properties 0.1 (0.3)
Negative goodwill and other
gains - (4.3)
Change in fair value of derivatives (0.5) 8.1
Change in fair value of convertible
bonds (excluding foreign exchange) 9.6 (14.9)
Adjustment in respect of associates - (3.8)
Deferred tax on the above
items (1.0) -
------------------------------------ -------- -------- -------- -------- -------- --------
EPRA EPS 11.2 725.1 1.5 15.3 740.0 2.1
Adjustments:
Interest charged in period
on convertible bonds - 3.3
Dilutive shares relating to
convertible bonds - 92.8
Dilutive shares relating to
the profit share scheme 2.8 2.3
Dilutive shares relating to
the Founder LTIP 6.4 -
------------------------------------ -------- -------- -------- -------- -------- --------
Diluted EPRA EPS 11.2 734.3 1.5 18.6 835.1 2.2
------------------------------------ -------- -------- -------- -------- -------- --------
Founder LTIP charge 19.1 (6.4) - -
------------------------------------ -------- -------- -------- -------- -------- --------
Adjusted EPS* 30.3 727.9 4.2 18.6 835.1 2.2
------------------------------------ -------- -------- -------- -------- -------- --------
Group 2017 2016
Weighted Weighted
average average
number Earnings number Earnings
of per of per
Earnings shares share Earnings shares share
Discontinued operations GBPm m pence GBPm m pence
------------------------------------ -------- -------- -------- -------- -------- --------
Normalised Income Profit (see
note 4) 20.6 725.1 2.8 41.8 740.0 5.6
Normalised Total Profit (see
note 4) 70.1 725.1 9.7 43.4 740.0 5.9
Basic EPS 133.2 725.1 18.4 61.5 740.0 8.3
Adjustments:
Dilutive shares relating to
convertible bonds - 92.8
Dilutive shares relating to
the profit share scheme 2.8 2.3
Dilutive shares relating to
the Founder LTIP 6.4 -
------------------------------------ -------- -------- -------- -------- -------- --------
Diluted EPS 133.2 734.3 18.1 61.5 835.1 7.4
Basic EPS 133.2 725.1 18.4 61.5 740.0 8.3
Adjustments:
Revaluation gains on investment
properties - (28.0)
Profit on the sale of investment
properties (0.1) (1.5)
Profit after tax on disposal
of discontinued operations (113.7) -
Change in fair value of derivatives (0.7) (0.4)
Deferred tax on the above
items 0.8 5.7
------------------------------------ -------- -------- -------- -------- -------- --------
EPRA EPS 19.5 725.1 2.7 37.3 740.0 5.0
Adjustments:
Dilutive shares relating to
convertible bonds - 92.8
Dilutive shares relating to
the profit share scheme 2.8 2.3
Dilutive shares relating to
the Founder LTIP 6.4 -
------------------------------------ -------- -------- -------- -------- -------- --------
Diluted EPRA EPS 19.5 734.3 2.7 37.3 835.1 4.5
------------------------------------ -------- -------- -------- -------- -------- --------
Founder LTIP charge - (6.4) - -
------------------------------------ -------- -------- -------- -------- -------- --------
Adjusted EPS* 19.5 727.9 2.7 37.3 835.1 4.5
------------------------------------ -------- -------- -------- -------- -------- --------
*Diluted EPRA EPS has been adjusted to exclude the impact of the
Founder LTIP charge on the earnings per share in the current
year.
The calculations for net asset value ("NAV") per share are shown
in the table below:
Group 2017 2016
Equity Number Net asset Equity Number Net asset
shareholders' of value shareholders' of value
funds shares per share funds shares per share
GBPm m pence GBPm m pence
------------------------------ -------------- ------- ---------- -------------- ------- ----------
Basic NAV 557.5 412.8 135.1 923.6 745.1 124.0
Unexercised share options* - 15.5 - 2.1
Mark-to-market of convertible
bonds - - 109.8 92.8
Diluted NAV 557.5 428.3 130.2 1,033.4 840.0 123.0
Adjustments:
Fair value of interest rate
derivatives (2.2) 2.2
Deferred tax 4.1 47.3
------------------------------ -------------- ------- ---------- -------------- ------- ----------
EPRA NAV 559.4 428.3 130.6 1,082.9 840.0 128.9
------------------------------ -------------- ------- ---------- -------------- ------- ----------
*The 15.5 million shares contains 13.0 million shares in relation
to the Founder LTIP awards and 2.5 million in relation to the Performance
Share Plan awards.
10. 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.
The results of the discontinued operations, which have been
included in the consolidated income statement, were as follows:
Group Group
2017 2016
GBPm GBPm
------------------------------------------------- ----- ------
Revenue 35.8 75.2
Cost of sales (4.2) (10.6)
-------------------------------------------------- ----- ------
Gross profit 31.6 64.6
Administrative expenses (4.4) (7.0)
Other operating income 0.2 0.1
Gains on investment properties 0.1 29.5
Operating profit 27.5 87.2
Finance income 0.7 0.4
Finance costs (6.6) (15.8)
Profit before tax 21.6 71.8
Tax (2.1) (10.3)
-------------------------------------------------- ----- ------
Profit after tax 19.5 61.5
Profit on disposal of discontinued operations 121.4 -
Tax attributable to profit on disposal (7.7) -
-------------------------------------------------- ----- ------
Profit after tax on disposal of discontinued
operations 113.7 -
-------------------------------------------------- ----- ------
Profit for the year from discontinued operations 133.2 61.5
-------------------------------------------------- ----- ------
Included in the profit on disposal of discontinued operations of
GBP121.4 million is GBP49.2 million profit on disposal of
discontinued operations and exchange differences recycled on
disposal of discontinued operations of GBP72.2 million as detailed
in note 4.
11. Disposal of subsidiary
As referred to in note 10, 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:
GBPm
---------------------------------------------------- -------
Investment property 1,067.7
Trade and other receivables 17.3
Cash and cash equivalents 8.2
Trade and other payables (20.7)
Current tax liabilities (3.0)
Borrowings (414.4)
Deferred tax liability (33.2)
------------------------------------------------------ -------
621.9
Profit on disposal of discontinued operations 121.4
------------------------------------------------------ -------
Net assets disposed 621.9
Cash proceeds net of transaction costs 671.1
------------------------------------------------------ -------
49.2
Release of translation reserve 72.2
------------------------------------------------------ -------
Profit on disposal of discontinued operations 121.4
------------------------------------------------------ -------
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents 671.1
Less: cash and cash equivalents disposed of (8.2)
------------------------------------------------------ -------
662.9
---------------------------------------------------- -------
12. Investment property
Group Group
2017 2016
Continuing Discontinued Continuing Discontinued
operations operations operations operations
GBPm GBPm GBPm GBPm
--------------------------------------- ----------- ------------ ----------- ------------
At 1 January 698.5 1,019.0 208.6 850.5
Additions - property purchases* 91.2 13.0 478.2 1.1
- capital expenditure 4.7 15.4 2.8 13.7
Lease incentives 1.4 (0.1) 1.4 1.2
Letting costs 0.1 0.2 0.1 (0.1)
Revaluation 62.0 - 15.4 28.0
Disposals (50.9) (1,067.7) (10.0) (12.1)
Transfer to investment property
held for sale (113.9) - (3.0) (7.4)
Exchange adjustment 1.1 20.2 5.0 144.1
At 31 December 694.2 - 698.5 1,019.0
--------------------------------------- ----------- ------------ ----------- ------------
Investment property held for sale:
At 1 January 3.0 7.4 - 1.6
Disposals (3.0) (7.4) - (1.8)
Transfer from investment property 113.9 - 3.0 7.4
Exchange adjustment - - - 0.2
--------------------------------------- ----------- ------------ ----------- ------------
At 31 December 113.9 - 3.0 7.4
--------------------------------------- ----------- ------------ ----------- ------------
*Property purchase additions of GBP91.2 million includes GBP88.8
million which relates to the acquisition of Industrial Multi
Property Trust plc.
Included within the property valuation is GBP5.9 million (20161:
GBP5.5 million) in respect of tenant lease incentives granted.
Investment property includes GBP2.0 million of property (2016:
GBP3.0 million) held under finance leases.
Properties classified as held for sale at 31 December 2017
represent properties that were actively marketed as at the year-end
and have subsequently been sold.
All investment properties are stated at fair value as at 31
December and have been valued by independent professionally
qualified external valuers Cushman & Wakefield Debenham Tie
Leung Limited, Jones Lang LaSalle or Knight Frank LLP. The
valuations have been prepared in accordance with the RICS Valuation
- Professional Standards January 2014, published by The Royal
Institution of Chartered Surveyors and with IVA1 of the
International Valuation Standards. The valuations are based on a
number of assumptions, the significant ones of which are the
determination of appropriate discount rates, estimates of future
rental income and capital expenditure. Rental income and yield
assumptions are supported by market evidence where relevant.
The Group has pledged certain of its investment properties to
secure bank loan facilities and a finance lease granted to the
Group (see note 13).
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). The Group's investment
property as at 31 December 2017 is categorised as Level 3 (31
December 2016: Level 3).
Investment properties are valued using a capitalisation
methodology applying a yield to current and estimated rental
income. Yields and rental values are considered to be unobservable
inputs and details of the ranges used in each region are as
follows:
Information about fair value measurements using unobservable
inputs (Level 3)
Fair value at Rent per sq m Yield
31 December 2017 Min Max Min Max
GBPm GBP GBP % %
--------------------------- ---------------- ------ ------- ----------- -------------
Belgium 14.5 25.7 108.2 3.0 9.7
France 17.2 29.5 29.5 8.3 8.3
UK - Industrial properties 760.0 10.8 178.0 2.5 15.6
UK - Offices 16.4 23.1 625.7 3.0 17.6
---------------------------- ---------------- ------ ------- ----------- -------------
Total 808.1
---------------------------- ---------------- ------ ------- ----------- -------------
Fair value at Rent per sq m Yield
31 December 2016 Min Max Min Max
GBPm GBP GBP %%
--------------------------- ---------------- ------ ------- ----------- ------------
Belgium 17.0 27.2 90.5 6.5 9.4
France 17.7 28.6 31.7 8.6 12.7
Germany 761.7 15.2 109.4 1.3 17.5
Netherlands 264.7 11.6 79.0 3.7 22.0
UK - Industrial properties 646.4 6.1 158.4 1.8 14.4
UK - Offices 20.4 23.1 625.7 3.1 19.1
---------------------------- ---------------- ------ ------- ----------- -------------
Total 1,727.9
---------------------------- ---------------- ------ ------- ----------- -------------
Everything else being equal, there is a positive relationship
between rental values and the property valuation, such that an
increase in rental values will increase the valuation of a property
and vice versa. However, the relationship between capitalisation
yields and the property valuation is negative; therefore an
increase in capitalisation yields will reduce the valuation of a
property and vice versa. There are interrelationships between these
inputs as they are determined by the market conditions, and the
valuation movement in any one period depends on the balance between
them. If these inputs move in opposite directions (i.e. rental
values increase and yields decrease) valuation movements can be
amplified, whereas if they move in the same direction they may be
offset, reducing the overall net valuation movement. The valuation
movement is materially sensitive to changes in yields and rental
values however it is impractical to quantify these changes.
As at 31 December 2017, the Group had entered into contracts for
GBP0.2 million (20161: GBP0.3 million) of building works that were
not complete.
13. Borrowings
Group Group
2017 2016
GBPm GBPm
--------------------------------------------------- ----- -----
Bank loans 297.1 712.5
Convertible bonds - 109.8
Unamortised borrowing costs (3.0) (8.3)
--------------------------------------------------- ----- -----
294.1 814.0
--------------------------------------------------- ----- -----
Current liability 0.3 20.5
Non-current liability 293.8 793.5
--------------------------------------------------- ----- -----
The bank loans and convertible bonds are repayable
as follows:
Within one year or on demand 0.6 23.2
Between one and two years 0.7 201.1
Between three and five years 294.9 596.6
Over five years 0.9 1.4
--------------------------------------------------- ----- -----
297.1 822.3
--------------------------------------------------- ----- -----
Undrawn committed facilities
Expiring between two and five years 37.0 58.6
--------------------------------------------------- ----- -----
Covenants
Facility Drawn Expiry Loan to value Interest
cover
------------------ ------------------ ---------- ------------- --------
GBP330.0 million GBP293.0 million July 2021 55% 200%
EUR4.6 million EUR4.6 million March 2025 - -
------------------ ------------------ ---------- ------------- --------
Interest charged on the GBP330 million facility is based on a
floating interest rate. The GBP330.0 million facility is secured
through charges against the issued share capital of the relevant
entities which own properties totalling GBP638.7 million. The Euro
facilities detailed above are secured by charges on property with
an aggregate carrying value of GBP13.6 million (2016: GBP1,081.6
million).
In July 2013, Hansteen (Jersey) Securities Limited issued EUR100
million of convertible bonds with a coupon of 4.0% expiring in July
2018.
On 26 June 2017 the Company decided to exercise its right and
invited the bondholders, on or before 29 June 2017, to either offer
to sell their bonds to the Company for a cash settlement and/or to
exercise their rights to convert their bonds to ordinary shares in
in the Company in accordance with the terms and conditions of the
Bonds on 29 June 2017.
All bondholders accepted the invitation to sell or convert their
bonds. 159 bonds of EUR100,000 each elected to settle in cash and
841 bonds of EUR100,000 each elected to convert to shares in the
Company. The cash settlement occurred on 5 July 2017 and amounted
to GBP24.0 million. The shares were issued to bondholders on 10
July 2017 which have been accounted for as GBP8.0 million of share
capital and GBP91.4 million of retained earnings.
The carrying amount of borrowings approximates their fair
value.
Interest rate and currency profile
Group 2017 2017 2016 2016
% GBPm % GBPm
--------- ---- ----- ---- -----
Euro 1.5 4.1 2.5 522.3
Sterling 2.1 293.0 2.2 300.0
---------- ---- ----- ---- -----
2.1 297.1 2.4 822.3
--------- ---- ----- ---- -----
The above table details the interest rates charged on the
outstanding loans as at 31 December 2017. The Group enters into
derivative financial instruments to provide an economic hedge to
its interest rate risk. After taking into account the effect of the
interest rate swaps the weighted average interest rates, excluding
amortised borrowing costs, are 1.5% for the Euro borrowings (2016:
3.2%) and 2.4% for the Sterling borrowings (2016: 2.4%).
14. Notes to the cash flow statement
Group Group
2017 2016
GBPm GBPm
------------------------------------------------------- ------- ------
Profit for the year 204.3 109.5
Adjustments for:
Share-based payments - continuing operations 17.8 1.4
Share-based payments - discontinued operations 0.1 -
Depreciation of property, plant and equipment
-
continuing operations 0.2 0.2
Goodwill impairment - 0.3
Negative goodwill and other gains - (4.3)
Share of profits of associates and gain on sale
of associates - (13.4)
Profit on sale of subsidiaries - -
Profit on sale of discontinued operations (121.4) -
Profit on sale of investment properties - continuing
operations (5.9) (2.4)
Profit on sale of investment properties - discontinued
operations (0.1) (1.5)
Fair value gains on investment properties -
continuing operations (62.0) (15.4)
Fair value gains on investment properties -
discontinued operations - (28.0)
Impairment of investment in subsidiary - -
Dividends received - -
Net finance costs - continuing operations 19.4 5.6
Net finance costs - discontinued operations 5.9 15.4
Tax charge - continuing operations (0.8) 0.1
Tax charge - discontinued operations 9.8 10.3
-------------------------------------------------------
Operating cash inflows before movements in working
capital 67.3 77.8
Decrease in trading properties - 0.8
(Increase)/decrease in receivables (2.3) 1.4
(Increase) in payables (1.9) (7.1)
------------------------------------------------------- ------- ------
Cash generated from/(used by) operations 63.1 72.9
Income taxes paid (4.6) (5.0)
Interest paid (13.3) (19.9)
------------------------------------------------------- ------- ------
Net cash inflow from operating activities 45.2 48.0
------------------------------------------------------- ------- ------
The liabilities arising from financing activities are reconciled
as follows:
1 January Cash Foreign Fair value Bonds Other 31 December
2017 flows Acquisition exchange changes converted 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ------- ----------- --------- ---------- ----------- --------- -----------
Long term borrowings 793.5 (76.2) (354.2) 10.1 14.1 (99.4) 5.9 293.8
Short term
borrowings 20.5 (20.2) - - - - 0.3
Lease liabilities 2.6 (0.2) - 0.1 - - 2.5
Assets held
to hedge long
term borrowings 2.2 (4.3) 0.9 0.1 (1.1) - (2.2)
818.8 (100.9) (353.3) 10.3 13.0 (99.4) 5.9 294.4
--------------------- --------- ------- ----------- --------- ---------- ----------- --------- -----------
Share-based payments
During the year ended 31 December 2016, the Group had two equity
settled share schemes.
-- Founder Long-term incentive plan
-- Performance Share Plan
The total share-based payment charge for the year under these
schemes was GBP18.0 million (2016: GBP1.4 million) with associated
social security costs of GBP2.5 million (2016: GBP0.1 million).
Founder Long-term incentive plan ("Founder LTIP")
The Founders and Joint Chief Executives are entitled to a share
award dependent on the growth in EPRA NAV. The target for the
Founder LTIP is that EPRA NAV per ordinary share (after adding back
dividends and other returns to shareholders) must exceed a compound
growth rate of 10% per annum in a three-year performance period.
The Founder LTIP plan has repeated to reward performance in each
three-year period; the current performance period ending on 31
December 2018.
The value of the share award for each Chief Executive is
calculated as 12.5% of the excess growth over the 10% growth
target. Any amount payable under the Founder LTIP is to be
satisfied by the award of ordinary shares of the Company.
The total share-based payment charge for the year under this
scheme was GBP16.8 million (2016: nil) with associated social
security costs of GBP2.3 million (2016: nil).
Performance Share Plan ("PSP")
The PSP awards share options with a nil exercise price to
executive directors and senior employees. The number of options
granted is calculated with reference to the employee's salary and
the share price prior to the grant date. To reflect the fact that
2012 was a transitional year between the 2005 Share Option Scheme
and the PSP, two awards were granted to participants, one with a
two-year performance period and one with a three-year performance
period. Vesting of the awards is staggered over the three years
following the performance period, with one third vesting each year
if performance targets are met. Performance targets are based on
Total Shareholder Return and Net Asset Value growth relative to a
peer group of listed UK REITs.
Outstanding Outstanding Average
Exercise at start Granted Lapsed at end Number remaining
Year issued price of year Exercised of year exercisable life (years)
------------ --------- ----------- --------- ----------- -------- ------------- ------------ -------------
2012 nil 1,177,553 - (1,177,553) - - - -
2013 nil 420,604 905 (283,458) - 138,051 - 5.2
2014 nil 547,583 1,961 (184,797) (65,788) 298,959 - 6.3
2015 nil 946,473 5,757 (73,977) - 878,253 - 7.2
2016 nil 1,203,285 9,315 (132,197) (12,112) 1,068,291 - 8.3
2017 nil - 722,348 (68,423) (58,452) 595,473 - 9.3
------------ --------- ----------- --------- ----------- -------- ------------- ------------ -------------
On 14 November 2017 the Company completed a share buyback of
140p per issued ordinary share which was at a premium to both the
EPRA NAV per share and the share price on 2 November 2017, being
the last day of trading before the entitlement to participate in
the share buyback ended.
The holders of outstanding PSP awards which were not
exercisable, could not participate in the share buyback, and
therefore additional awards were granted so they were not
disadvantaged. This resulted in an increase of 19,530 awards during
the year in relation to PSP 3 to 7.
The total share-based payment charge for the year under this
scheme was GBP1.1 million (2016: GBP1.4 million) with associated
social security costs of GBP0.2 million (2016: GBP0.1 million).
The inputs to the PSP awards share options' valuation were:
2017 2016
---------------------------------- ------- -------
Closing share price at grant date 124.7p 107.3p
Weighted average exercise price nil nil
Weighted average fair value 98.8p 78.1p
Expected volatility 24.19% 19.21%
Expected life 5 years 5 years
Risk free rate 0.65% 0.49%
----------------------------------- ------- -------
Expected volatility was calculated by reference to dividend
adjusted share prices for a comparator group of companies.
15. Events after the balance sheet date
A second dividend in respect of the year ended 31 December 2017
of 3.8p per share will be payable on 17 May 2018 to shareholders on
the register on 6 April 2018. Based on the number of shares in
issue at 31 December 2017 this will result in a distribution of
GBP15.7 million.
On 5 February 2018 we announced that we had exchanged contracts
for the sale of the Industrial Multi Property Trust plc portfolio
for GBP116.0 million with completion due on 26 March 2018.
On 13 March 2018 the Secretary of State for Transport acquired
Saltley Business Park, Birmingham, by way of a Compulsory Purchase
Order (CPO) under the High Speed Rail (London - West Midlands) Act
2017, to enable construction of the first phase of the HS2
route.
The Board is proposing capital distribution of 35p per share
(GBP144.5 million) to shareholders in the first half of 2018.
[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 Joint Chief Executives' Review.
[2] The sale of the German and Dutch assets in June 2017
generated one-off profits which are included in Normalised Total
Profit but the sale of these assets reduced Normalised Income
Profit in the year.
3 Like-for-like occupancy improvement and like-for-like rent
roll improvement are defined in the Joint Chief Executives'
Review.
[3] Re-presented to classify the German and Dutch portfolio as
discontinued operations
1 Re-presented to classify the German and Dutch portfolio as
discontinued operations
1 Re-presented to classify the German and Dutch portfolio as
discontinued operations
2 The profit on disposal of discontinued operations of GBP49.2
million and the exchange differences recycled on disposal of
discontinued operations of GBP72.2 million reconciles to the
GBP121.4 million profit on disposal of discontinued operations
included in note 10
1 Re-presented to classify the German and Dutch portfolio as
discontinued operations
1 Re-presented to classify the German and Dutch portfolio as
discontinued operations
1 Re-presented to classify the German and Dutch portfolio as
discontinued operations
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UKVURWWAOAUR
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