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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hansteen Holdings Plc | LSE:HSTN | London | Ordinary Share | GB00B0PPFY88 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 116.20 | 116.20 | 116.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
-- 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
(END) Dow Jones Newswires
March 20, 2018 03:01 ET (07:01 GMT)
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