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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 : 7988T
Hansteen Holdings plc
25 March 2019
25 March 2019
Hansteen Holdings PLC
("Hansteen", the "Group" or, the "Company")
Hansteen (LSE: HSTN), the investor in UK industrial property, announces its full-year results for the year ended 31 December 2018.
Financial Highlights from continuing operations
-- EPRA NAV per share of 102.7p after return of capital of 35p during 2018 (31 December 2017: 130.6p)1
-- IFRS NAV per share of 103.3p (31 December 2017: 135.1p) -- Full year dividend of 6.2p (FY 2017: 6.1p)
-- Normalised Income Profit (NIP) of GBP25.8 million (FY 2017: GBP31.3 million). NIP per share of 6.3p (FY 2017: 4.3p)(1)
-- Normalised Total Profit (NTP) of GBP45.8 million (FY 2017: GBP37.5 million). NTP per share of 11.1p (FY 2017: 5.2p)1
-- IFRS profit of GBP59.5 million (FY 2017: GBP71.1 million) following GBP294.5 million of sales in 2018. Basic EPS of 14.4p (FY 2017: 9.8p)
-- Net debt to property value ratio of 29.7% (31 December 2017: 27.6%)1
Operational Highlights
-- Like-for-like property valuation increase of GBP39.6 million or 6.5% -- 874 new leases / renewals at 10.4% ahead of ERV at 31 December 2017
-- IMPT portfolio sold for GBP116.0 million generating a profit of GBP6.1 million over 31 December 2017 valuation
-- Saltley Business Park compulsorily purchased (CPO). Total claim agreed for GBP60.0 million
-- GBP118.5 million of other sales generating profits of GBP9.2 million or 8.6% over 31 December 2017 valuation
-- 34 assets purchased for GBP56.9 million reflecting a net initial yield of more than 9.2%
-- GBP144.5 million (35p per share) of capital returned to shareholders in May 2018 following the GBP578.1 million of capital returned by way of a tender offer in November 2017
Melvyn Egglenton, Chairman of Hansteen, commented: "2018 was another very successful year for Hansteen with income growth, profit on sales and growth in NAV per share when adjusted for the material return of capital during the year."
"The Hansteen management platform is, we believe, among the best in the sector and is a significant asset to the Group. As a result of the quantity of property sold in the last few years, the size of the management platform has decreased, accordingly, we have reduced the cost of running the business in-line with the reduced capital base and the reduced property portfolio."
"The team is well placed to manage the portfolio going forward. We believe that our diverse portfolio and management focus presents a rare combination in today's property sector that can achieve both income and capital growth."
Morgan Jones and Ian Watson, Joint Chief Executives, added: "We still believe that it is right to crystallise much of the value that we have created before the cycle turns and indeed, to a large extent, we have done so. However, over the last year, two matters have become clearer: firstly, investing in urban multi-let industrial property is likely to outperform most other property investments, both in terms of total return and earnings over the next few years; and secondly, that our UK management platform is unrivalled for its presence (six regional offices), experience (many of the team have been specialising in regional urban multi-let industrial properties since the early 2000s) and proven performance (year after year our team has grown occupancy, rent roll and value). We genuinely believe our team is 'best in class' for what we do."
"Accordingly, in the near term our emphasis will be to manage our portfolio for income and value growth, rather than sales. We will continue to seek acquisitions that fit our approach and sell opportunistically but do not envisage that we will be significant net sellers until we have a clearer view on this current property cycle."
Presentation for Analysts
A presentation to analysts (with dial in facilities and webex) will take place today at 09:30 at Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET.
Dial in details are as follows:
Direct DDI (s) for Participant Connection: 0800 3589473
Participant Pin Code: 20335032#
Webex details are as follows:
Audience URL: https://arkadin-event.webex.com/arkadin-event/onstage/g.php?MTID=eff89530b26d1ec27655f2de52564dcfa
Audience password: Event password: 301279695
For further details, please e mail Jeremy Carey at jeremy.carey@tavistock.co.uk or Charlotte Dale at charlotte.dale@tavistock.co.uk
For more information:
Morgan Jones/Ian Jeremy Carey/Charlotte Watson Dale Hansteen Holdings Tavistock Communications PLC Tel: 020 7920 3150 Tel: 020 7408 7000 jeremy.carey@tavistock.co.uk www.hansteen.co.uk
[1] Important Explanatory Notes about Alternative Performance Measures used in this Report:
The Group uses a number of Alternative Performance Measures (APMs) which are not defined or specified within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and allow greater comparability between periods but do not consider them to be a substitute for or superior to IFRS measures. Key APMs used are Normalised Income Profit (NIP), Normalised Total Profit (NTP), measures defined by EPRA and adjusted EPS.
NIP and NTP are adjusted measures intended to show the underlying earnings of the Group before fair value movements and other non-recurring or otherwise non-cash items. Fair value movements include those in relation to investment property, financial assets and financial liabilities. Non-recurring or otherwise non-cash items include foreign exchange gains or losses and the Founder LTIP charge. A reconciliation of NIP and NTP to the Profit for the year prepared in accordance with IFRS is set out in note 4. A reconciliation of EPRA measures and adjusted EPS is included within note 9. A calculation of net debt and the net debt to value ratio is shown in the Financial Review.
Glossary of terms shown at the end of this report.
Hansteen Holdings PLC
Preliminary Announcement
CHAIRMAN'S REVIEW
I am pleased to present Hansteen's results and strategic report for the year ended 31 December 2018.
2018 was another very successful year for Hansteen with income growth, profit on sales and growth in NAV per share when adjusted for the material return of capital during the year. This has led to a strong set of financial results.
RESULTS
During 2018, the Group disposed of GBP294.5 million and acquired GBP56.9 million of property which enabled us to make a return of capital on 11 May 2018 of GBP144.5 million, equivalent to 35p per share. This follows the GBP1.12 billion sale of the European business in 2017 and the return of capital that followed. As a result of these capital returns, some of the reported profit measures have fallen compared to the previous year but show an increase on a per share basis.
NIP from continuing operations was GBP25.8 million (FY 2017: GBP31.3 million) and the profits on the substantial amount of property sales has increased our NTP from continuing operations by 22.1% to GBP45.8 million (FY 2017: GBP37.5 million). On a per share basis, NIP was 6.3p (FY 2017: 4.3p) and NTP was 11.1p (FY 2017: 5.2p). IFRS profit was GBP59.5 million (FY 2017: GBP71.1 million).
The Group's IFRS NAV per share at 31 December 2018 was 103.3p (31 December 2017: 135.1p) and the EPRA NAV was 102.7p (31 December 2017: 130.6p).
DIVID
In May 2018, the Group returned GBP144.5 million or 35p per share of capital to shareholders (approximately 25% of the NAV) and despite this substantial reduction in the Group's capital base, the Board has decided to maintain the second ongoing dividend for 2018 at 3.8p per share. This decision reflects the strong financial performance of the Group during 2018 with realised profits of GBP45.8 million, as well as the impact of the REIT requirements as our portfolio has become more UK focussed. The total dividend in relation to 2018 will be 6.2p per share (2017: 6.1p). The second ongoing dividend of 3.8p will be paid as a Property Income Distribution (PID) on 17 May 2019. The associated record date is 5 April 2019 and the ex-dividend date is 4 April 2019.
Going forward, the Board expects to continue with a prudent progressive dividend policy adjusted for the 25% reduction in the capital base.
LONG-TERM PERFORMANCE
2018 was the sixth consecutive year that Hansteen has produced double digit total returns to shareholders (measured by EPRA NAV growth, dividends and other returns to shareholders). When the Group was listed in 2005, a Founder Long-term Incentive Plan (Founder LTIP) for the two Joint Chief Executives was approved by the shareholders, since when only one award has been made, relating to the three-year period ended 31 December 2015. However, as a result of the high returns made in the last three years, adding value of approximately GBP400 million or 50% return on capital, the Joint Chief Executives have received an award, under the Founder LTIP, of 11.6 million shares each after the deduction of PAYE and National Insurance Contributions. Although in the near term each of the Joint Chief Executives intends to sell some shares, following those sales their ownership will be more than treble their previous shareholdings. The Board believes that those substantial shareholdings provide a powerful motivation for the Joint Chief Executives going forward and align their interests directly with those of the shareholders. Full details of both the plan and the award are set out in the Financial Review.
It has already been agreed that the Founder LTIP will be terminated following this award. Furthermore, in recognition of the reduced portfolio size and the need to right size business costs, the Joint Chief Executives are reducing their remuneration packages by approximately half, compared to 2018 excluding the Founder LTIP. Other members of the Board have also agreed to zero uplifts in their remuneration for 2019. Full details are set out in the Report of the Remuneration Committee within the Annual Report.
BOARD CHANGES
As previously announced, Margaret Young retired as a Non--Executive Director and Chair of the Remuneration Committee of the Company. Margaret has been a Non--Executive Director of the Company since October 2015 and departed the Board on 31 December 2018. On behalf of the Board, I should like to thank Margaret for her significant contribution to our deliberations generally and especially as Chair of the Remuneration Committee. The Board has benefitted from her considerable corporate and governance experience during her time with us. David Rough has replaced Margaret as Chair of the Remuneration Committee. Details of our approach to replacing the Non-Executive Directors is set out in more detail in the Reports of the Nomination and Remuneration Committees within the Annual Report.
BREXIT AND THE WAREHOUSE PROPERTY INVESTMENT MARKET
The current period contains a high degree of uncertainty with questions over the general economy and the property investment market whilst the issue of the EU exit process and its aftermath remain unresolved. The uncertain outcome of the negotiations makes it difficult to assess the future impact on Hansteen but the Board believes that the fundamentals of occupational supply and demand will continue to be strong despite the short-term economic and political volatility. To date we have not seen any negative impact on our tenants' take-up of space with each of our regional offices reporting good levels of enquiries and good levels of new lettings so far in 2019. The impact of e-commerce has benefitted the industrial and logistics property sector, partly at the expense of retail. There is unlikely to be any material new development of multi-let light industrial property unless rents and capital values rise further and our diverse portfolio of tenants (both by number and by sector) brings resilience to our income stream and the prospect of further rental growth.
We have a strong balance sheet with a prudent level of gearing (net debt to property value ratio of 29.7%), with a main bank facility that does not expire until July 2021. The Group has a cash balance of GBP55.1 million and further funds that can be drawn under this existing debt facility. The Board therefore considers the Group to have adequate available resources to moderate the impact of any future macro-economic challenges while being able to take advantage of any investment opportunities that may arise.
OUTLOOK
The Hansteen management platform is, we believe, among the best in the sector and is a significant asset to the Group. As a result of the quantity of property sold in the last few years, the size of the management platform has decreased, accordingly, we have reduced the cost of running the business in-line with the reduced capital base and the reduced property portfolio.
The team is well placed to manage the portfolio going forward. We believe that our diverse portfolio and management focus presents a rare combination in today's property sector that can achieve both income and capital growth.
Melvyn Egglenton
Chairman
24 March 2019
Joint Chief Executives' REVIEW
During 2017 and 2018 the business experienced a tremendous amount of change with significantly more than half of the property portfolio sold in several transactions and substantially more than half of the Company's capital returned to shareholders.
From 2008 to 2013 the property market was distressed and, in this period, Hansteen raised capital to acquire properties. In the period 2013 to 2018, we made high returns in excess of 18% per annum(2) much of which has been crystallised. We believe that we are at a turning point for the business.
Many of our shareholders are aware that in May 2005 we sold Ashtenne, the UK urban multi-let industrial specialist company which we founded in 1989 and floated on the main market of the Stock Exchange in 1997. Our stewardship of that business was successful, with our shareholders receiving consistently high returns through the life of the business. Following the sale of Ashtenne, we felt that there was an opportunity to repeat the Ashtenne business model in Continental Europe, where yields were still much higher than in the UK, occupancy and rents were low and there was limited competition to buy urban multi-let industrial property. Accordingly, at the IPO of Hansteen on AIM in November 2005, we said that we would assemble a portfolio of urban, multi-let industrial properties in Continental Europe with a view to provide investors with consistently high and realised returns, manage the properties for income and capital growth and at some stage realise the value that had been added. We also said that we would extend our geography back into the UK when we believed real value had returned.
From the time of the IPO, we were able to identify high yielding opportunities enabling us to pay a strong, progressive and covered dividend from the end of the first full year of trading. Our task was complicated by the financial crisis, however Hansteen was one of only a very limited number of AIM listed property companies that survived. There were even established main market quoted property companies who were only saved by value destroying, rescue rights issues. But, we were able to position the business to take advantage of the excellent opportunities arising from the crisis. As a result, since the IPO, the weighted average return on capital has been approximately 13% per annum(2) .
During 2018, we purchased GBP56.9 million of property that we believed would be value enhancing, worked our assets to increase the rent roll and capital values, sold GBP294.5 million of property at a good profit and returned GBP144.5 million of capital to our shareholders. We set out the full details of these transactions in this report as we summarise what has been another very successful year for the business.
(2) Measured by EPRA NAV growth plus dividends assuming that investors reinvested any capital returns from Hansteen back in to Hansteen at the EPRA NAV post the return of capital and invested pro-rata in all the fund raises.
FINANCIAL RESULTS FOR 2018
We are pleased to present another set of strong financial results with high realised profits and growth in NAV per share when adjusted for the material return of capital during the year. Comparisons with 2017 figures require adjustments to reflect the reduced capital base following the return of capital to shareholders.
The Group's IFRS profit from continuing operations was GBP59.5 million compared with GBP71.1 million in 2017. Basic IFRS EPS was 14.4p (FY 2017: 9.8p) and adjusted EPS was 6.3p (FY 2017: 4.2p). Adjusted EPS is based on EPRA EPS adjusted for the fair value of the Founder LTIP charge as shown in note 9. The Board believes that our normalised profit measures of NIP and NTP (Normalised Income Profit and Normalised Total Profit) reflect the underlying realised profits from the business before considering property and other revaluation movements. The table below sets out the calculation and results for NIP and NTP with a breakdown between Continuing Operations and Discontinued Operations.
Hot Features
Premium
Continuing Discontinued Total Continuing Discontinued Total
2018 2018 2018 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- ------------- ------- ----------- ------------- -------
Property rental
income 51.7 0.3 52.0 59.0 35.8 94.8
Direct operating
expenses (4.6) 0.2 (4.4) (5.0) (4.2) (9.2)
Administrative expenses (13.0) (0.4) (13.4) (13.4) (4.4) (17.8)
Net interest payable (8.3) 0.5 (7.8) (9.3) (6.6) (15.9)
------------------------- ----------- ------------- ------- ----------- ------------- -------
Normalised Income
Profit (NIP) 25.8 0.6 26.4 31.3 20.6 51.9
Profit on sale of
properties 19.4 (0.2) 19.2 5.6 49.3 54.9
Other operating
income 0.6 - 0.6 0.6 0.2 0.8
------------------------- ----------- ------------- ------- ----------- ------------- -------
Normalised Total
Profit (NTP) 45.8 0.4 46.2 37.5 70.1 107.6
------------------------- ----------- ------------- ------- ----------- ------------- -------
As the Group were net sellers of GBP237.6 million of property during 2018, the substantial sales have reduced our NIP from continuing operations to GBP25.8 million (FY 2017: GBP31.3 million) but the profits on those sales has increased our NTP from continuing operations by 22.1% to GBP45.8 million (FY 2017: GBP37.5 million).
The Board regards EPRA NAV per share plus dividends and other returns to shareholders as the best measure of value growth. The Group's EPRA NAV per share at 31 December 2018 was 102.7p (31 December 2017: 130.6p), after the payment of 6.2p per share of dividends and a 35p per share return of capital during the year. The movement in EPRA NAV from 31 December 2017 can be summarised as follows:
http://www.rns-pdf.londonstockexchange.com/rns/7988T_1-2019-3-22.pdf
The Group uses Alternative Performance Measures (APMs) which are not defined within IFRS. The Board use these measures to assess the underlying realised profits from the business and as such these measures should be considered alongside the IFRS measures. Definitions of these APMs are shown in the glossary to this report. The reconciliation of NIP and NTP to the IFRS profit before tax is contained in note 4 to the financial statements. Basic NAV per share is reconciled to EPRA NAV per share in note 9 to the financial statements.
PROPERTY PORTFOLIO
Our portfolio is focussed more on smaller, urban distribution and light industrial warehouses rather than big box logistics properties. The average size of 4,800 sq ft across our 2,700 UK units generally means that our occupiers are local trades undertaking a wide variety of activities as opposed to larger national or international businesses. Our portfolio is geographically well spread throughout the UK with the majority of our properties being located north of the Watford Gap services.
The built portfolio has a yield of 7.6% on the passing rent (31 December 2017: 7.5%), 8.2% on the contracted rent (31 December 2017: 8.0%) and 9.2% on the valuer's ERV. Including the 453.7 acres of undeveloped land, the total portfolio has a yield on the passing rent of 7.1% and a yield on the contracted rent of 7.7%. The summary analysis of the built portfolio, at 31 December 2018, is set out below:
Built Yield
area Passing Contracted on Yield
No of (million Vacant rent rent Value passing on contracted Yield
properties sq ft) area (GBPm) (GBPm) (GBPm) rent rent on ERV
UK 248 12.9 8.5% 43.7 47.2 576.4 7.6% 8.2% 9.2%
------------ ---------- ------- -------- ----------- -------- --------- -------------- --------
Belgium
& France 8 0.7 12.0% 2.4 2.4 27.2 8.7% 8.7% 9.3%
------------ ---------- ------- -------- ----------- -------- --------- -------------- --------
Total built
portfolio 256 13.6 8.7% 46.1 49.6 603.6 7.6% 8.2% 9.2%
============= ============ ========== ======= ======== =========== ======== ========= ============== ========
Property valuation, acquisitions and disposals
A key part of the Hansteen business model is to selectively acquire properties that we believe have a tangible opportunity to add value. This is achieved through the methodical and detailed assessment of investment opportunities and despite the increased competition for our type of properties, the last few years have shown that our opportunistic and often management intensive approach to acquisitions has produced significant capital growth. In August 2018, we managed to secure the purchase of 34 assets located throughout the UK for GBP56.9 million (including costs). The 1.4 million sq ft of space had a passing rent of GBP5.3 million per annum at acquisition which reflects a high yield of over 9.2%. We have already sold eight of these assets at a GBP2.7 million or 11.4% increase over the gross acquisition cost and have initiated various other asset management plans across the remaining properties.
In addition to the disposal of the IMPT portfolio and the Saltley CPO (explained in further detail below), the sustained investor appetite for UK multi-let light industrial property allowed for the disposal of a further 43 assets during the year for a combined consideration of GBP118.5 million. Purchasers ranged from individual owner occupiers to listed property companies and the sales generated profits of GBP9.2 million or 8.6% above the 31 December 2017 valuation. The Group used part of the proceeds to repay GBP55.0 million of debt on the revolving credit facility with Royal Bank of Scotland, in December 2018.
The like-for-like value of the portfolio has increased by GBP39.6 million or 6.5% since 31 December 2017. The Midlands and the North West showed the largest increases of c.14% with the North East, Yorkshire and the South West and Wales showing increases of c.6%. Values in Scotland remained broadly static and values in Belgium and France went down EUR1.9 million. Despite the overall valuation increase, the built portfolio has a higher yield at 31 December 2018 of 7.6% than the 7.5% yield at 31 December 2017.
Saltley Compulsory Purchase Order (CPO)
On 13 March 2018, the Secretary of State for Transport acquired Saltley Business Park, Birmingham by way of a CPO under the High Speed Rail (London - West Midlands) Act 2017, to enable construction of the first phase of the HS2 route. As part of the CPO process, High Speed Two (HS2) Limited, acting on behalf of the Secretary of State, made a down payment of GBP37 million in March 2018 and a further GBP19 million was received in March 2019. Hansteen are due a further GBP4 million in due course bringing the total for the settlement to GBP60 million. Hansteen purchased the property in 2010 for GBP24.4 million and the value of the property at 31 December 2017 was GBP55.2 million which, after fees and expenses, has produced a profit of GBP4.2 million.
Industrial Multi Property Trust PLC (IMPT)
On 27 March 2018, Hansteen completed the sale of the IMPT portfolio for GBP116.0 million. After acquiring the portfolio in the first half of 2017 for GBP88.8 million, our UK asset management team was able to increase the occupancy, rent roll and ERV and the sale generated a profit, after costs, of GBP6.1 million over the 31 December 2017 valuation of GBP109.7 million.
Rental growth
All of our UK regions are experiencing levels of rental growth and as our portfolio has a relatively short weighted average unexpired lease term (WAULT) of approximately three years, any growth in market rents can be captured relatively quickly. Rent growth can be measured in a variety of different ways and we set out some statistics below to illustrate the excellent performance of our in-house team which has, yet again, excelled during 2018, securing 874 new lettings and lease renewals generating GBP17.2 million per annum of contracted rent.
2018 2017 Change % Change
Average passing rent
(per let sq ft) GBP3.73 GBP3.51 GBP0.22 6.3%
------------------- ------------------- ------------------- --------------------
Average contracted
rent (per let sq
ft) GBP4.03 GBP3.73 GBP0.30 8.1%
------------------- ------------------- ------------------- --------------------
Valuation ERV (per sq
ft) GBP4.14 GBP3.82 GBP0.32 8.4%
------------------- ------------------- ------------------- --------------------
Increase in
contracted rent
above previous
valuation ERV for
new lettings and
renewals 10.4% 3.3% 7.1% -
------------------- ------------------- ------------------- --------------------
Like-for-like GBP1.7m GBP0.9m GBP0.8m -
increase in
contracted
rent
------------------- ------------------- ------------------- --------------------
The statistics are calculated on a like-for-like basis for the properties that were held at 31 December 2018 with the corresponding 2017 numbers being for the same properties adjusted for any acquisitions during 2018.
RETURN OF CAPITAL
The sale of the IMPT portfolio and the Saltley Business Park CPO generated net cash proceeds in excess of GBP150 million. Owing to the high level of demand for industrial property investments, opportunities to reinvest these substantial cash deposits in properties that fitted the Hansteen business model were limited. As the cash deposits would have earned virtually no interest and, therefore, materially diluted the returns from the business, the Board considered that returning the GBP144.5 million of capital to the shareholders by means of a reduction and return of capital was in the best interests of all shareholders. Each shareholder received 35p per share in cash on or around the 11 May 2018.
OUTLOOK
We have a reputation as a cyclical investor reflected in our business model of 'buy, work and sell'. We have acquired over GBP2.2 billion of property since the IPO, mainly during the early part of the current cycle and profitably sold approximately GBP2 billion of property, largely in the last few years. Having raised GBP718 million of capital from our shareholders (including the convertible bond), we have returned GBP723 million and our remaining business has a market capitalisation of c.GBP400 million, with a property portfolio valued at GBP650 million. During that period, we have distributed GBP349 million through strongly progressive and covered dividends.
Since we sold our German and Dutch properties, many of our shareholders have assumed that we would keep selling to draw the business to a conclusion and indeed we were again net sellers during 2018. We had an approach from Warehouse REIT PLC to purchase a major part of our business although it ultimately did not proceed. This process has focused our minds on the future of the business.
We still believe that it is right to crystallise much of the value that we have created before the cycle turns and indeed, to a large extent, we have done so. However, over the last year, two matters have become clearer: firstly, investing in urban multi-let industrial property is likely to outperform most other property investments, both in terms of total return and earnings over the next few years; and secondly, that our UK management platform is unrivalled for its presence (six regional offices), experience (many of the team have been specialising in regional urban multi-let industrial properties since the early 2000s) and proven performance (year after year our team has grown occupancy, rent roll and value). We genuinely believe our team is 'best in class' for what we do.
Accordingly, in the near term our emphasis will be to manage our portfolio for income and value growth, rather than sales. We will continue to seek acquisitions that fit our approach and sell opportunistically but we do not envisage that we will be significant net sellers until we have a clearer view on this current property cycle. Our judgement today reflects what we said in our full year report in March 2016 - "our reading of the current cycle continues to be that of a long, grinding, corrugated stretch of low interest rates and low returns which should play to the strengths of our business". On the one hand, there is considerable uncertainty and risk at present, both politically, domestically and globally, which is clouding the property market. On the other hand, there is an unprecedented amount of capital being allocated to property globally. If in the future, that uncertainty clears, and the market moves ahead, we may recommence significant selling. If, however, the market falls back, we will look to acquire properties and grow the business once again. We have meaningful fire power for acquisitions if opportunities present themselves.
The strength of our position is that in the meantime we have an enormously diverse portfolio producing a solid and growing income. In the regions in which we specialise, supply of properties is not growing and will not do so while rents and values remain well below those required for development. On the other hand, tenant demand is strong, driven by a plethora of local economy businesses together with the positive effect on demand of the continuing growth of e-commerce. We are proud of our consistent and progressive dividend record since IPO and expect this to continue. However, in times such as this, the key strength for a property company is the ability to attract and retain tenants, grow rents and identify and exploit opportunities to add value. We are grateful to our team which has proven consistently, over the years to be able to do all of these things.
Ian Watson Morgan Jones
Joint Chief Executives
24 March 2019
financial review
RESULTS
As discussed in the Chairman's Review and the Joint Chief Executives' Review, the Group's IFRS profit from continuing operations was GBP59.5 million compared with GBP71.1 million in 2017. Basic IFRS EPS was 14.4p (FY 2017: 9.8p) and adjusted EPS was 6.3p (FY 2017: 4.2p). Adjusted EPS is based on EPRA EPS adjusted for the fair value of the Founder LTIP charge as shown in note 9.
NET ASSET VALUE
The net assets attributable to equity shareholders at 31 December 2018 were GBP470.1 million (2017: GBP557.5 million). The movement in IFRS net assets is summarised in the table below:
2018
GBPm
--------------------------------------------- --------
Normalised Total Profit from all operations 46.2
Property revaluation 39.6
Tax, exchange and fair value movements 1.5
Share based payments including Founder LTIP (2.3)
Acquisition of own shares (2.1)
Dividends paid (25.6)
Return of capital (including costs) (144.7)
IFRS NAV movement (87.4)
--------------------------------------------- --------
GEARING
At 31 December 2018, net debt was GBP193.9 million (31 December 2017: GBP225.4 million) and net debt to value was 29.7% (31 December 2017: 27.6%). The table below sets out the calculation of net debt and the net debt to value ratio:
2018 2017
GBPm GBPm
---------------------------------------------------- ---------------- ----------------
Lease liabilities - Belgium finance lease 2.2 2.5
Lease liabilities - Other leases 3.2 -
Bank borrowings 245.5 297.1
Capitalised bank loan fees (1.9) (3.0)
Cash and cash equivalents (55.1) (71.2)
---------------------------------------------------- ---------------- ----------------
Net debt 193.9 225.4
Carrying value of investment and trading properties
externally valued 650.0 818.1
Carrying value of head leases 2.2 -
---------------------------------------------------- ---------------- ----------------
Total carrying value of investment and trading
properties 652.2 818.1
---------------------------------------------------- ---------------- ----------------
Net debt to value ratio 29.7% 27.6%
---------------------------------------------------- ---------------- ----------------
As at 31 December 2018, the Group had total bank facilities of GBP333.5 million (31 December 2017: GBP334.1 million), of which GBP245.5 million were drawn (31 December 2017: GBP297.1 million). Borrowings are in the same currency as the assets against which they are secured. Cash resources at the year-end were GBP55.1 million (31 December 2017: GBP71.2 million). The weighted average debt maturity, at 31 December 2018, was 2.6 years and the weighted average maturity of hedging was 2.6 years.
Analysis of the Group's bank loan facilities at 31 December 2018 is set out below:
Lender Amount Unexpired All-in-interest Loan to Interest
Facility undrawn term rate value cover
millions millions years covenant covenant
----------------------- ---------------------- --------------------- --------------------- --------------------------- -------------------- --------------------
BNP Paribas
Fortis GBP3.5 - 4.6 1.54% - -
Royal Bank
of
Scotland GBP330.0 GBP88.0 2.6 3.15% 55% 2.00:1
----------------------- ---------------------- --------------------- --------------------- --------------------------- -------------------- --------------------
Total
facilities GBP333.5 GBP88.0 2.6 3.13%
----------------------- ---------------------- --------------------- --------------------- --------------------------- -------------------- --------------------
In addition to the bank loan facilities, the Group has a GBP2.2 million finance lease in place to fund a property in Belgium. As at 31 December 2018, the lease had an unexpired term of four years and an interest rate implicit in the lease of 1.7%.
Including the obligations under the Belgium finance lease, the Group had total borrowings of GBP247.7 million (31 December 2017: GBP299.6 million) 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 2018, was 3.1% (31 December 2017: 2.7%).
FOUNDER LONG-TERM INCENTIVE PLAN (Founder LTIP)
The Founder LTIP was established at IPO in November 2005. Under the scheme, if the growth in the Group's EPRA NAV per share plus dividends (and other returns to shareholders) exceeds compound growth of more than 10% per annum over a fixed three-year period, the Joint Chief Executives will each receive an award of shares with a value of 12.5% of the outperformance multiplied by the number of ordinary shares in issue at the end of the performance period. The latest performance period ran from 1 January 2016 to 31 December 2018 and as previously reported, after consultation with shareholders and the directors, this will be the final performance period for which Founder LTIP shares can be awarded.
The calculation of performance in this final period has been materially affected by the tender offer of November 2017 and as explained in the return of capital circular and the 2017 Annual Report and Accounts, the Founder LTIP calculation has been adjusted and measured over two periods, being pre and post the return of capital date of 14 November 2017.
During the first part of the final performance period (1 January 2016 - 14 November 2017), the Company benefitted from the sale of the German and Dutch businesses, achieving a total return of 32.1% or 16.0% per annum compound over the period, which exceeds the 10% per annum compound growth target by 14.0p per share, equivalent to GBP115.8 million. During the second part of the final performance period (15 November 2017 - 31 December 2018), the Company benefitted from further profitable property disposals and valuation growth, achieving a total return of 19.1% or 16.7% per annum compound over the period, which exceeds the 10% per annum compound growth target by 10.1p per share, equivalent to GBP42.0 million.
The outperformance in the two periods is aggregated to arrive at an outperformance for the three-year period of GBP157.8 million. The participation in 12.5% of the excess performance results in an award to each of the Founder Directors of 21.8 million shares. The Founder Directors have agreed to forgo part of their awards equal in value to their PAYE and Employee National Insurance Contributions due on the vesting of the awards, which will be settled on their behalf by the Company. After settlement of the PAYE and National Insurance Contributions, the two Founder Directors will be issued with 11.6 million ordinary shares each.
The 2018 IFRS pre-tax profit includes a charge of GBP25.9 million (2017: GBP19.1 million, 2016: nil) related to the potential Founder LTIP awards and associated National Insurance Contributions. Only the effect of the associated National Insurance Contributions on the Founder LTIP awards affects the NAV because, in accordance with IFRS, the charge for the potential Founder LTIP awards excluding the associated National Insurance Contributions is credited back through equity.
Following the announcement of these results on Monday 25th March 2019, the Hansteen Employee Benefit Trust (HEBT) will need to obtain approximately 25 million shares to meet the obligations under the Founder LTIP and Performance Share Plan (PSP). The Group has surplus cash and the market value of the shares are currently at a small discount to the Net Asset Value and therefore the HEBT will be seeking to acquire shares up to a value of GBP11 million in the market on reasonable terms. Depending on the outcome of the market purchases, the share awards under the Founder LTIP and PSP will be met by a maximum of 25 million newly issued shares if no shares are purchased in the market, or a combination of share purchases and newly issued shares.
In the near term, each of the Joint Chief Executives intends to sell some or all of their existing shareholdings (3.7 million shares each) but will each be retaining the 11.6 million shares that they receive in relation to the Founder LTIP period ending 31 December 2018. This will increase their ownership to more than treble their previous shareholdings.
Principal Risks AND UNCERTAINTIES
The Board recognises that effective risk management is essential to Hansteen in achieving its objectives and has carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
The Board, senior management and staff continually monitor the significant risks which they believe the Group is facing. There will always be some risk when undertaking property investments and the control process is aimed at mitigating and minimising these risks where possible, rather than eliminating them. Appropriate controls are established to mitigate newly identified risks, parameters are set under which management can operate and, where necessary, action is taken to improve existing controls. The Audit Committee, as part of its remit, also consider in detail the significant risks faced by the Group and the adequacy of the controls in place.
The Board has and continues to monitor the developments in the Brexit negotiations with a view to assessing the potential impact on the business. The uncertain outcome of the negotiations makes it difficult to assess the potential impact on the business, but the Board considers that the principal risks set out below deal with the potential consequences that might result from the failure to agree satisfactory terms with the EU such as tenant failure, recession and reduced profitability and lack of availability of capital.
The current key risks identified by the Board, their potential impact and the steps taken to mitigate them are presented below.
Principal Cause Impact Probability Risk Management
Risk
-------------------------- -------------------------- ------------------ ------------------ ---------------------------
Over reliance High dependence High Medium The Board believes such
on key on Joint risk
executives. Chief Executives. is to some extent
mitigated
through the appointment
and
support of high calibre
employees
and professional advisers.
All such appointments are
approved
by a member of the Board
and
performance is monitored
regularly.
Tenant Over reliance High Low Whilst there is
failure. on income always a risk
from one that recession
Recession particular or new
and reduced type of tenant legislation
profitability. exposing may affect
the Group specific
to industry industry
specific types, the
periods of Board is
recession. 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 Banks under High Medium The Board
availability internal acknowledge
of capital. pressure that
to improve there may be
liquidity. occasions when
Banks banks are under
considering internal
unutilised pressures
loans too which may
expensive. conflict with
existing
financing
arrangements
and
it may prove
more difficult
to secure the
more
challenging
properties.
Detailed due
diligence
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
and cyber protect believes this
security information risk
breaches and to be mitigated
resulting information to some extent
in data systems from by the Group
leakage, unauthorised outsourcing
financial access, much
loss, misuse, of its
reputational disruption, day-to-day
damage or modification processing
business or to reputable
disruption. destruction. third party
organisations.
Due diligence
designed to
assess
the integrity
of third party
processes and
systems is
undertaken
by management
as part of the
tendering and
appointment
process
and is
maintained on
an ongoing
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
on investment for an demand is
and acquisition. reviewed
deterioration Prices driven continuously
in operating up by through direct
results. increased information
competition. from Hansteen's
Reduced number network of
of investment managing agents
opportunities. and managers.
Experienced
members
of management
review each
acquisition
and due
diligence is
carried
out by external
parties. The
Board is
required to
approve
all
acquisitions
and disposals
over a
prescribed
amount.
Banking Financial Medium Medium The Board
counterparty difficulties believes such
disruption. at risks
Lack of institutions are reduced by
liquidity. holding adherence to
significant a Cash and
deposits. Liquidity
Management
Policy that
sets out how
funds
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.
Hansteen has been running a successful summer internship programme in the regional offices for a number of years, providing students who are studying Real Estate with an opportunity to gain hands-on experience in many aspects of Asset Management. This has proved a valuable entry point for our graduate trainee programme as many of the graduates return to us for their first step on their career ladder.
This year Hansteen has helped a further four team members to successfully complete their Assessment of Professional Competence (APC). The APC gives the graduates the practical training and experience which, when combined with academic qualifications, leads to full RICS membership. This sponsorship involves providing the graduates with peer-to-peer learning, workshops, senior mentorship and mock interview panels. We continue to support a further four graduates and expect them to complete their APC in 2019-2020.
We continue to seek new and innovative ways to enhance our support of the regional universities. We have conducted student workshops designed and led by our Asset Managers, and for the past four years we have joined course leaders on judging panels to formally assess student presentations. In providing direct and constructive feedback, we aim to support and stretch the students' personal and professional development in boardroom and interview scenarios.
Equality and Diversity
Hansteen has a diverse workforce and commitment to being an equal opportunities employer. We understand that the performance and engagement of our employees is critical to our business success. We hire people from a multitude of backgrounds and our training takes a comprehensive and personal approach allowing us to focus on matching the right people to the right roles. Our employment policies and practices reflect a culture where decisions are made solely on the basis of individual capability and potential in relation to the needs of the business.
We are committed to providing equal opportunities and an entirely non-discriminatory working environment. Our diversity policy aims to ensure that no job applicant or employee receives less favourable treatment because of gender, marital status, race, age, sexual preference, religion, belief or disability. All decisions are based on the merits of the individual concerned. The Group is dedicated to undertaking its business operations in a way which respects individual human rights, treats individuals with dignity and allows freedom of association. We value the contribution of each and every one of our employees and together we have created an inspiring working environment where everyone is engaged, motivated and safe from discrimination so they can fulfil their potential.
All employees are eligible to participate in career development and promotion opportunities. Support also exists for employees who become disabled to continue in their employment or to be retrained for other suitable roles.
As at 31 December 2018, the composition of Hansteen's employees, including both Executive and Non-Executive Directors, was as follows:
Number Percentage
Male Female Male Female
-------------------------- ----- ------- ----- -------
Directors - including
Non-Executive Directors 6 - 100% 0%
Senior managers 3 2 60% 40%
All other staff 20 18 53% 47%
-------------------------- ----- ------- ----- -------
Gender Pay Gap
We have many years of industry experience which we are keen to combine with increasingly flexible ways of working. We believe this will help attract and retain a skilled and diverse population equipped to drive returns for our shareholders. We remain confident that men and women in our business are paid equally for doing similar roles. They join us on the same salary and can progress their careers at the same rate.
While we are aware of our gender pay gap, we are also clear of the reason for it. In common with much of the property industry, our gender pay gap is a result of the roles men and women hold within the business and the salaries that those roles attract. We are continuing to work on narrowing the gap and we are confident that our actions and flexible approach will help us gradually close the gap. There is complete commitment at senior management level in Hansteen to achieving a higher number of women in senior roles but we recognise that in common with the rest of the industry, this will take time.
Gender pay gap figures
The gender pay gap is defined as the difference between the mean or median hourly rate of pay that male and female colleagues receive.
Our figures are based on the hourly rate of pay as at 5 April 2018 and bonuses paid in the full 12 months to April 2018.
Mean gender hourly pay gap Median gender hourly pay gap
On average women earn 50.5% less
than men Women earn 39.2% less than men
-------------------------------
Mean gender bonus pay gap Median gender bonus pay gap
On average women earn 73.4% less
than men Women earn 19% less than men
-------------------------------
The gender bonus gap is higher than the gender pay gap because bonus payments are more substantial for more senior and more responsible roles. In Hansteen these are currently filled by significantly more men than women.
Proportion of male and female colleagues receiving a bonus payment.
Bonuses are used to reward and retain our best people.
Proportion of male colleagues Proportion of female colleagues
receiving a bonus receiving a bonus
80.0% 22.2%
--------------------------------
Proportion of men and women in each pay quartile
This data demonstrates the underlying reason for our pay gap. The hourly rate of pay is divided into four equal quartiles. In the lowest quartile women represent 54.5% of our population, in the highest quartile they represent 30.0%.
Description Males Females ----------------------- ------ -------- Lower quartile 36.6% 54.5% Lower middle quartile 54.5% 45.5% Upper middle quartile 63.6% 36.4% Upper quartile 70.0% 30.0% ----------------------- ------ --------
Why we have a gender pay gap
While men and women are paid equally for doing similar roles in our business, the main reason for our gender pay gap remains structural - women are more absent from the senior roles which attract higher salaries.
We know that culturally, the property sector can be seen as a more attractive career option for men than women and we are playing our part in trying to alter this view.
What are we doing to address our gender pay gap?
Adjusting the balance between males and females in higher paid roles has been on our Board's agenda since before the requirement to publish data and we know it will take time to achieve.
We have non-discriminatory recruitment practices and we are clear that the starting salaries of men and women for the same roles are the same. Men and women have the same career opportunities and both men and women can and do progress throughout the business. We are actively working on our culture to encourage a truly diverse team and have identified behaviours which support our values. We support flexible working and have seen an increase in the number of our colleagues who have chosen to work flexibly. Currently 7% of our colleagues work flexibly and a number now elect to work remotely on an ad hoc basis. We are increasingly working with women's networks and businesses encouraging diversity.
Recruitment
We recruit without any form of discrimination and encourage our colleagues to recommend potential candidates to us. We look for colleagues with the right skills and knowledge who are willing to espouse the behaviours which underpin our culture, and we are continuing to broaden our methods of recruitment with a view to attracting an increasingly diverse population. We actively work with schools in our communities and will continue to encourage more women to pursue careers in finance.
Slavery and Human Trafficking Statement
The slavery and human trafficking statement made by Hansteen, pursuant to section 54(1) of the Modern Slavery Act 2015, which relates to the Company and its subsidiaries in respect of the financial year ended 31 December 2018, can be found on the Company's website https://www.hansteen.co.uk/about-us/our-governance/modern-slavery-act-disclosure. The statement sets out the measures that Hansteen has taken to address the risk of slavery and human trafficking taking place in our business and within our supply chain throughout the year.
statement of directors' responsibilities
The responsibility statement has been prepared in connection with the Company's full Annual Report for the year ended 31 December 2018. Certain parts of the Annual Report are not included in this announcement, as described in note 2.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
-- the Chairman's Statement, the Joint Chief Executives' Review and the Finance Review include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board:
Morgan Jones and Ian Watson
Joint Chief Executives
24 March 2019
Consolidated income statement for the year ended 31 December 2018
Group Group
2018 2017
Continuing operations Note GBPm GBPm
------------------------------------------------------------- ---------------- ----------------- -----------------
Gross revenue(3) 3 56.1 63.9
Rental income 3 51.7 59.0
Cost of sales 3 (4.7) (5.3)
------------------------------------------------------------- ---------------- ----------------- -----------------
Gross profit 3 47.0 53.7
Administrative expenses (38.9) (32.5)
Other operating income 6 0.6 0.6
Profit on sale of investment properties 19.5 5.9
Fair value gains on investment properties 12 39.6 62.0
Operating profit 67.8 89.7
Finance income 0.7 4.3
Finance costs (9.0) (23.7)
Profit before tax 59.5 70.3
Tax 7 - 0.8
------------------------------------------------------------- ---------------- ----------------- -----------------
Profit for the year from continuing operations 59.5 71.1
Profit for the year from discontinued operations
net of tax 10 1.9 133.2
------------------------------------------------------------- ---------------- ----------------- -----------------
Profit for the year 61.4 204.3
------------------------------------------------------------- ---------------- ----------------- -----------------
Attributable to:
Equity holders of the parent 61.4 204.1
Non-controlling interest - 0.2
------------------------------------------------------------- ---------------- ----------------- -----------------
61.4 204.3
------------------------------------------------------------- ---------------- ----------------- -----------------
Earnings per share
Basic
Continuing operations 9 14.4p 9.8p
Discontinued operations 9 0.5p 18.4p
------------------------------------------------------------- ---------------- ----------------- -----------------
14.9p 28.2p
Diluted
Continuing operations 9 12.9p 9.7p
Discontinued operations 9 0.4p 18.1p
------------------------------------------------------------- ---------------- ----------------- -----------------
13.3p 27.8p
------------------------------------------------------------- ---------------- ----------------- -----------------
3 The new financial statement line "Gross revenue" has been included as a result of implementing the new accounting standard IFRS 15, Revenue from Contracts with Customers. This does not form part of the casting of the consolidated income statement. Comparative figures have been included accordingly.
Consolidated statement of comprehensive income for the year ended 31 December 2018
Group Group
2018 2017
GBPm GBPm
------------------------------------------------------- ----------------- -----------------
Profit for the year after tax 61.4 204.3
Other comprehensive income/(expense):
Exchange differences arising on translating
foreign operations 0.3 15.2
Exchange differences recycled to the income
statement on disposal of discontinued operations (0.1) (72.2)
Total other comprehensive income/(expense)
for the year 0.2 (57.0)
-------------------------------------------------------- ----------------- -----------------
Total comprehensive income for the year 61.6 147.3
-------------------------------------------------------- ----------------- -----------------
Attributable to:
Equity holders of the parent 61.6 147.1
Non-controlling interest - 0.2
-------------------------------------------------------- ----------------- -----------------
61.6 147.3
------------------------------------------------------- ----------------- -----------------
All components of other comprehensive income may be recycled through the income statement.
Balance sheets as at 31 December 2018
Group Group
2018 2017
Note GBPm GBPm
--------------------------------- ---------------- ----------------- -----------------
Non-current assets
Property, plant and equipment 0.9 0.2
Investment properties 12 629.2 694.2
Derivative financial instruments 2.7 2.2
----------------------------------- ---------------- ----------------- -----------------
632.8 696.6
Current assets
Investment properties held
for sale 12 13.0 113.9
Trading properties 10.0 10.0
Trade and other receivables 45.2 18.3
Cash and cash equivalents 55.1 71.2
----------------------------------- ---------------- ----------------- -----------------
123.3 213.4
--------------------------------- ---------------- ----------------- -----------------
Total assets 756.1 910.0
----------------------------------- ---------------- ----------------- -----------------
Current liabilities
Trade and other payables (31.6) (30.4)
Current tax liabilities (1.3) (20.5)
Borrowings 13 (0.3) (0.3)
Lease liabilities 14 (0.8) (0.2)
(34.0) (51.4)
Non-current liabilities
Borrowings 13 (243.3) (293.8)
Lease liabilities 14 (4.6) (2.3)
Provisions - (0.8)
Deferred tax liabilities (4.1) (4.2)
----------------------------------- ---------------- ----------------- -----------------
(252.0) (301.1)
--------------------------------- ---------------- ----------------- -----------------
Total liabilities (286.0) (352.5)
----------------------------------- ---------------- ----------------- -----------------
Net assets 470.1 557.5
----------------------------------- ---------------- ----------------- -----------------
Equity
Share capital 15 41.3 41.3
Share premium 11.0 114.5
Other reserves 15 (1.3) (0.1)
Capital redemption reserves - 41.3
Translation reserves 5.0 4.8
Retained earnings 414.1 355.7
----------------------------------- ---------------- ----------------- -----------------
Equity attributable to equity
holders of the parent 470.1 557.5
Non-controlling interest - -
--------------------------------- ---------------- ----------------- -----------------
Total equity 470.1 557.5
----------------------------------- ---------------- ----------------- -----------------
The financial statements of Hansteen Holdings PLC, registered number 05605371, were approved by the Board of Directors and authorised for issue on 24 March 2019. Signed on behalf of the Board of Directors
Ian Watson and Morgan Jones
Joint Chief Executives
Statements of changes in equity for the year ended 31 December 2018
Group Capital
Share Share Other redemption Translation 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
2017 74.6 114.5 (1.9) - 61.8 674.6 923.6 0.6 924.2
Profit for the
year - - - - - 204.1 204.1 0.2 204.3
Other
comprehensive
expense for the
year - - - - (57.0) - (57.0) - (57.0)
------------------------------ ------- ------- -------- ---------- ----------- -------- ------- --------------- -------
Total
comprehensive
income for the
year - - - - (57.0) 204.1 147.1 0.2 147.3
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)
Balance at 31
December
2017 41.3 114.5 (0.1) 41.3 4.8 355.7 557.5 - 557.5
Effect of change
in accounting
policy
(note 2) - - - - - (0.2) (0.2) - (0.2)
------------------------------ ------- ------- -------- ---------- ----------- -------- ------- --------------- -------
As restated 41.3 114.5 (0.1) 41.3 4.8 355.5 557.3 - 557.3
Profit for the
year - - - - - 61.4 61.4 - 61.4
Other
comprehensive
income for the
year - - - - 0.2 - 0.2 - 0.2
------------------------------ ------- ------- -------- ---------- ----------- -------- ------- --------------- -------
Total
comprehensive
income for the
year - - - - 0.2 61.4 61.6 . 61.6
Return of capital - (103.5) - (41.3) - 0.1 (144.7) - (144.7)
Dividends - - - - - (25.6) (25.6) - (25.6)
Share-based
payments - - - - - 23.6 23.6 - 23.6
Share options
exercised - - 0.9 - - (0.9) - - -
Purchase of own
shares - - (2.1) - - - (2.1) - (2.1)
Balance at 31
December
2018 41.3 11.0 (1.3) - 5.0 414.1 470.1 - 470.1
------------------------------ ------- ------- -------- ---------- ----------- -------- ------- --------------- -------
Other reserves comprises a deficit relating to the purchase of the Company's own shares. See note 15.
Cash flow statements for the year ended 31 December 2018
Group Group
2018 2017
Note GBPm GBPm
-------------------------------------------------------- ---------------- ----------------- -----------------
Net cash inflow from operating activities 16 0.4 45.2
Investing activities
Interest received 0.3 0.4
Acquisition of subsidiary undertakings - (24.6)
Proceeds from sale of subsidiaries 115.6 662.9
Additions to investment properties - continuing
operations (62.5) (7.1)
Additions to investment properties - discontinued
operations - (28.4)
Proceeds from sale of investment properties
- continuing operations 155.5 60.6
Proceeds from sale of investment properties
- discontinued operations - 7.4
Net cash generated from investing activities 208.9 671.2
Financing activities
Dividends paid (25.6) (47.0)
Cost of issuing shares - (0.1)
Own shares acquired (2.1) (0.7)
Return of capital (144.7) -
Cancellation of shares under tender offer - (583.1)
Repayments lease liabilities (0.8) (0.2)
New borrowings raised (net of expenses)
- continuing operations 116.0 119.8
New borrowings raised (net of expenses)
- discontinued operations - 0.2
Bank loans repaid - continuing operations (167.6) (212.4)
Bank loans repaid - discontinued operations - (4.0)
Additions to derivative financial instruments - (0.1)
Settlement on disposal of derivative financial
instruments - (4.0)
Net cash used in financing activities (224.8) (731.6)
---------------------------------------------------------- ---------------- ----------------- -----------------
Net decrease in cash and cash equivalents (15.5) (15.2)
Cash and cash equivalents at beginning
of year 71.2 82.5
Effect of changes in foreign exchange rates (0.6) 3.9
---------------------------------------------------------- ---------------- ----------------- -----------------
Cash and cash equivalents at end of year 55.1 71.2
---------------------------------------------------------- ---------------- ----------------- -----------------
NOTEs to the financial statements
1. General information
Hansteen Holdings PLC is a company which was incorporated in the United Kingdom and registered in England and Wales on 27 October 2005. The Company is required to comply with the provisions of the Companies Act 2006. The address of the registered office is 1st Floor, Pegasus House, 37-43 Sackville Street, London W1S 3DL.
The Group's principal activity is investing in predominantly industrial properties in the United Kingdom.
These financial statements are presented in Sterling because that is the currency of the primary economic environment in which the Company operates.
2. Basis of preparation
The financial information set out in these condensed financial statements does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.
The statutory accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee as endorsed by the EU relevant to its operations and effective for accounting periods beginning on 1 January 2018.
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2018.
The adoption of the following amendments has not had any material impact on the disclosures or on the amounts reported in these financial statements.
Amendments to IFRS 2 Classification and Measurement of Share-based Payment
Transactions
Amendments to IAS 40 Transfers of Investment Property
Annual Improvements to IFRSs: 2014-2016 Annual Improvements to IFRSs
Amendments to IAS 28 Investments in Associates and Joint Ventures
IFRIC 22 Foreign Currency Transactions and Advance
Consideration
The adoption of the IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases had the following impact on the disclosures and amounts reported in these financial statements.
Title of IFRS 9 Financial Instruments
standard
---------- --------------------------------------------------------------
Nature of IFRS 9 replaced IAS 39, effective for annual periods
change beginning on or after 1 January 2018, and addresses
the classification, 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 In the current year, the Group adopted IFRS 9 Financial
Instruments (as revised in July 2014). The date of initial
application was 1 January 2018. The changes did not
have a material impact on the consolidated financial
statements of the Group and resulted in limited changes
to presentation and disclosure. In accordance with the
transitional provisions in IFRS 9, comparative figures
have not been 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. The standard is effective for annual
periods beginning on or after 1 January 2018.
Impact In the current year, the Group adopted IFRS 15 Revenue
from Contracts with Customers (as amended in April 2016)
which is effective for annual periods beginning on or
after 1 January 2018. The Group restated comparative
information making the transition date 1 January 2017.
Revenue recognition
IFRS 15 does not apply to investment property rental
income as this falls under the scope of IFRS 16 Leases.
The standard applies to non-core revenue streams; service
charge income, trading property sales and management
fees. IFRS 15 has immaterial differences on 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 income statement.
Disclosures
The new standard also introduces expanded disclosure
requirements. The income statement, revenue (note 3)
and operating segments (note 5) have been amended to
include Gross Revenue and service charges in line with
IFRS 15. The wording of the accounting policy for 'Service
charges' have been updated in line with the new IFRS
15 requirements.
---------- --------------------------------------------------------------
Title of IFRS 16 Leases
standard
---------- ---------------------------------------------------------------------------
Nature of IFRS 16 replaces IAS 17 Leases, and requires the application
change 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 at the lease commencement date (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 In the current year, the Group, for the first time,
has applied IFRS 16 Leases (as issued by the IASB in
January 2016) in advance of its effective date.
The Group has applied IFRS 16 using the modified retrospective
approach and has not restated comparative information.
The date of initial application of IFRS 16 for the Group
is 1 January 2018, referred to as the transition date.
The Group has taken advantage of the following practical
expedients under the modified retrospective approach:
* The Group used a single discount rate to portfolios
with reasonably similar characteristics; and
* The Group has excluded any initial direct costs from
the measurement of the right of use asset at the
transition date.
The Group recognised a right of use asset of GBP1.1
million in property, plant and equipment and GBP2.2
million in investment property and a lease liability
of GBP3.4 million at the transition date. The impact
at transition date on the opening retained earnings
is GBP0.2 million.
The impact on the consolidated income statement for
the year ended 31 December 2018 is a GBP0.2 million
decrease in cost of sales, a GBP0.1 million decrease
in administration expenses and a GBP0.2 million increase
in finance costs.
In the Group cash flow statement the depreciation of
the right of use assets is included in operating activities
and the repayment of the lease liabilities is included
in financing activities. The impact on the Group cash
flow statements is an increase in net cash flow from
operating activities of GBP0.5 million and decrease
in net cash generated from financing activities of GBP0.8
million. In the prior year the operating lease expense
was GBP0.9 million.
In 2017 operating lease commitments were disclosed applying
IAS 17 with undiscounted non-cancellable future lease
payments of GBP22.7 million at 31 December 2017. In
2018 after discounting the future lease payments under
IFRS 16, the liability reduced by GBP19.5 million. The
leases are disclosed as lease liabilities, note 14,
at GBP3.2 million as at 31 December 2018.
---------- ---------------------------------------------------------------------------
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 17 Insurance contracts
IFRS 9 (amendments) Prepayment Features with Negative Compensation
IAS 28 (amendments) Long-term Interests in Associates and Joint
Ventures
Annual improvements to IFRS 2015 -2017 Cycle Amendments to IFRS 3 Business Combinations, IFRS
11 Joint Arrangements, IAS 12 Income Taxes
and IAS 23 Borrowing Costs
IAS 19 (amendments) Plan Amendment, Curtailment or Settlement
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
IFRIC 23 Uncertainty over Income Tax Treatments
3. Revenue and cost of sales
Group Group
2018 2017
Continuing operations GBPm GBPm
-------------------------------------------------------- ----------------- -----------------
An analysis of the Group's revenue and cost
of sales is as follows:
Rental income 51.7 59.0
Direct operating expenses relating to investment
properties that generated rental income(4) (4.2) (4.8)
Direct operating expenses relating to investment
properties that did not generate rental income (0.4) (0.2)
--------------------------------------------------------- ----------------- -----------------
Direct operating expenses (4.6) (5.0)
Cost of sales of trading properties (0.1) (0.3)
Cost of sales (4.7) (5.3)
--------------------------------------------------------- ----------------- -----------------
Gross profit 47.0 53.7
--------------------------------------------------------- ----------------- -----------------
An analysis of the Group's gross revenue is
as follows:
Rental income 51.7 59.0
Service charge income 4.4 4.9
--------------------------------------------------------- ----------------- -----------------
Gross revenue(5) 56.1 63.9
--------------------------------------------------------- ----------------- -----------------
Including interest income of GBP0.3 million (2017: GBP0.3 million), total revenue was GBP56.4 million (2017: GBP64.2 million(5) ).
4 Direct operating expenses are reported net of service charge income.
5 This note to the financial statements has been updated as a result of implementing the new accounting standard IFRS 15, Revenue from Contracts with Customers. Comparative figures have been included accordingly.
4. Normalised Income Profit and Normalised Total Profit
The Group uses a number of Alternative Performance Measures (APMs) which are not defined or specified within IFRS. The Directors use these measures in order to assess the underlying operational performance of the Group and allow greater comparability between periods but do not consider them to be a substitute for or superior to IFRS measures. Key APMs used are Normalised Income Profit (NIP), Normalised Total Profit (NTP), measures defined by EPRA and adjusted EPS.
NIP and NTP are adjusted measures intended to show the underlying earnings of the Group before fair value movements and other non-recurring or otherwise non-cash items. Fair value movements include those in relation to investment property, financial assets and financial liabilities. Non-recurring or otherwise non-cash items include foreign exchange gains or losses and the Founder LTIP charge. A reconciliation of NIP and NTP to the Profit for the year prepared in accordance with IFRS is set out below. A reconciliation of EPRA measures and adjusted EPS is included within note 9.
Group 2018 2017
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------------------- ------------------------ ----------------- ---------------------- ------------------------ -----------------
Investment property
rental
income 51.7 0.3 52.0 59.0 35.8 94.8
Direct operating
expenses (4.6) 0.2 (4.4) (5.0) (4.2) (9.2)
Administrative
expenses
excluding Founder
LTIP
charge (13.0) (0.4) (13.4) (13.4) (4.4) (17.8)
Net interest
(payable)/receivable (8.3) 0.5 (7.8) (9.3) (6.6) (15.9)
--------------------------------- ---------------------- ------------------------ ----------------- ---------------------- ------------------------ -----------------
Normalised Income
Profit 25.8 0.6 26.4 31.3 20.6 51.9
Profit on sale of investment
properties 19.5 - 19.5 5.9 0.1 6.0
Loss on trading properties (0.1) - (0.1) (0.3) - (0.3)
Total profits on sale
of properties 19.4 - 19.4 5.6 0.1 5.7
Other operating income 0.6 - 0.6 0.6 0.2 0.8
(Loss)/profit on disposal
of discontinued operations - (0.2) (0.2) - 49.2 49.2
--------------------------------- ---------------------- ------------------------ -----------------
Normalised Total
Profit 45.8 0.4 46.2 37.5 70.1 107.6
Founder LTIP charge (25.9) - (25.9) (19.1) - (19.1)
Change in fair value of
investment properties 39.6 - 39.6 62.0 - 62.0
Change in fair value of
interest rate swaps and
caps 0.4 - 0.4 0.5 0.7 1.2
Change in fair value of
convertible bonds - - - (12.1) - (12.1)
Fees incurred on conversion
of convertible bonds - - - (0.4) - (0.4)
Interest incurred on the
convertible bond - - - (1.6) - (1.6)
Foreign exchange (losses)/gains (0.4) - (0.4) 3.5 - 3.5
Exchange differences recycled
on disposal of discontinued
operations - 0.1 0.1 - 72.2 72.2
Profit before tax 59.5 0.5 60.0 70.3 143.0 213.3
Tax - 1.4 1.4 0.8 (9.8) (9.0)
--------------------------------- ---------------------- ------------------------ -----------------
Profit for the year 59.5 1.9 61.4 71.1 133.2 204.3
--------------------------------- ---------------------- ------------------------ ----------------- ---------------------- ------------------------ -----------------
Continuing administrative expenses of GBP13.0 million (2017: GBP13.4 million) plus the Founder LTIP charge of GBP25.9 million (2017: GBP19.1 million) reconcile to the administrative expenses of GBP38.9 million (2017: GBP32.5 million) reported in the consolidated income statement. Further details on the Founder LTIP are set out in note 17.
Net interest expense in 2017 in NIP excluded the interest on the convertible bond as this expense was not recurring.
5. Operating segments
Segment revenues and results
The Group's reportable segments are determined by geographic location, which represents the information reported to the Group's Directors for the purposes of resource allocation and assessment of segment performance. A segment's result consists of its gross profit as detailed for the Group in note 3. Administrative expenses and net finance costs are managed as central costs and are therefore not allocated to segments. Gains/(losses) on investment properties by segment are also presented below.
Group Gross Gross
revenue(6) Revenue Result revenue Revenue Result
2018 2018 2018 2017 2017 2017
Continuing GBPm GBPm GBPm GBPm GBPm GBPm
operations
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
Belgium 1.1 1.1 0.8 1.1 1.1 0.9
France 1.2 1.2 1.2 1.4 1.4 2.3
UK 53.8 49.4 45.0 61.4 56.5 50.5
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
Total segment
result 56.1 51.7 47.0 63.9 59.0 53.7
Administrative
expenses (38.9) (32.5)
Other operating
income 0.6 0.6
Changes in fair
value
of investment
properties
by segment:
Belgium (1.7) (2.9)
France (0.2) (1.1)
UK 41.5 66.0
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
Total changes
in fair
value of
investment
properties 39.6 62.0
Profit on
disposal of
investment
properties 19.5 5.9
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
Total gains on
investment
properties 59.1 67.9
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
Operating
profit 67.8 89.7
Net finance
costs (8.3) (19.4)
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
Profit before
tax 59.5 70.3
--------------------------- ---------------------- -------------------- ------------------- ------------------- -------------------- -------------------
6 This note to the financial statements has been updated as a result of implementing the new accounting standard IFRS 15, Revenue from Contracts with Customers. The note now also details gross revenue by segment. Comparative figures have been included accordingly.
Segment assets
For the purposes of monitoring segment performance and allocated resources between segments, the Directors monitor the investment and trading properties attributable to each segment. All assets are allocated to reportable segments with the exception of investments in associates and elements of cash, derivatives and tax balances that are managed centrally.
2018
Group Additions
to Non-
Investment Trading Total Other Total investment current
properties7 properties properties assets Assets properties assets
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ----------------------- ---------------------- ---------------------- ------------------ ------------------ ---------------------- -------------------
Belgium 12.9 - 12.9 0.7 13.6 - 12.9
France 14.3 - 14.3 2.8 17.1 0.2 14.3
UK 615.0 10.0 625.0 76.5 701.5 62.3 602.0
------------------------ ----------------------- ---------------------- ---------------------- ------------------ ------------------ ---------------------- -------------------
Total
segment
assets 642.2 10.0 652.2 80.0 732.2 62.5 629.2
Unallocated
assets 23.9 3.6
------------------------ ----------------------- ---------------------- ---------------------- ------------------ ------------------ ---------------------- -------------------
Total assets 756.1 632.8
------------------------ ----------------------- ---------------------- ---------------------- ------------------ ------------------ ---------------------- -------------------
2017
Group Additions
to Non-
Investment Trading Total Other Total investment current
properties(8) 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
------------------------ ------------------------- ---------------------- ---------------------- ------------------ ------------------ ---------------------- -------------------
7 Includes investment properties held for sale and right of use assets for head leases.
8 Includes investment properties held for sale.
6. Other operating income
In 2018, other operating income includes GBP0.4 million of insurance receipts (2017: GBP0.5 million) and GBP0.2 million receipt in relation to a loan acquired as part of the acquisition of a property portfolio in 2014. The bank loan was acquired by the Company at a discount and the accounts for the year ended 31 December 2014 included a gain of GBP3.2 million on the acquisition of the loan. The Company agreed to the liquidation of the original borrower in 2018 in exchange for a final loan repayment of GBP0.2 million. In 2017 there was an additional GBP0.1 million relating to a forfeited deposit on an exchange which did not complete.
7. Tax
Group Group
2018 2017
Continuing operations GBPm GBPm
-------------------------------------------------------- ----------------- -----------------
UK current tax
On net income of the current year - (0.8)
Foreign current tax
Credit in respect of prior years (0.3) -
On net income of the current year 0.4 0.6
Total current tax 0.1 (0.2)
Deferred tax in respect of prior years 0.1 -
Deferred tax in respect of the current year (0.2) (0.6)
--------------------------------------------------------- ----------------- -----------------
Total tax credit - (0.8)
--------------------------------------------------------- ----------------- -----------------
UK Corporation tax is calculated at 19.00% (2017: 19.25%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. In addition to the tax charge on continuing operations above, there is a GBP0.1 million (2017: GBP2.1 million) tax charge relating to ordinary profits arising on the discontinued operations and a GBP1.5 million tax credit (2017: GBP7.7 million tax charge) arising on the profit on disposal of discontinued operations as disclosed in note 10.
The tax credit for the year can be reconciled to the profit per the income statement as follows:
Group Group
2018 2017
Continuing operations GBPm GBPm
--------------------------------------------------------- ----------------- -----------------
Profit before tax 59.5 70.3
Tax at the UK corporation tax rate of 19.00%
(2017: 19.25%) 11.3 13.5
Tax effect of:
UK tax not payable due to REIT exemption (16.5) (19.5)
Deferred tax assets not recognised 6.4 4.5
Effect of different tax rates in overseas
subsidiaries (1.1) 0.1
Expenses that are not deductible in taxable
profit 0.1 0.7
Change in deferred tax due to change in tax
rate - (0.1)
Adjustment in respect of prior years (0.2) -
Tax credit for the year - (0.8)
---------------------------------------------------------- ----------------- -----------------
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
2018 2017
GBPm GBPm
---------------------------------------------------------- ----------------- -----------------
Amounts recognised as distributions to equity
holders in the period:
Second dividend for the year ended 31 December
2017 of 3.8p (2017: 3.7p) per share 15.7 27.5
Interim dividend for the year ended 31 December
2018 of 2.4p (2017: 2.3p) per share 9.9 19.0
----------------------------------------------------------- ----------------- -----------------
25.6 46.5
---------------------------------------------------------- ----------------- -----------------
Amounts not recognised as distributions to
equity holders in the period:
Proposed second dividend for the year ended
31 December 2018 of 3.8p (2017: 3.8p) per
share 15.6 15.7
----------------------------------------------------------- ----------------- -----------------
As a REIT, the Company is required to pay Property Income Distributions (PIDs) equal to at least 90% of the Group's exempted net income, after deduction of withholding tax at the basic rate of 20% (2017 20%). GBP25.2 million of the dividends paid during the year ended 31 December 2018 is attributable to PIDs (2017: GBP32.9 million).
9. Earnings per share and net asset value per share
The European Public Real Estate Association (EPRA) has issued recommended bases for the calculation of certain earnings per share (EPS) information. Diluted EPRA EPS, adjusted EPS and EPRA NAV are reconciled to the IFRS measures in the following table.
As noted in note 4 the Group uses a number of APMs which are not defined within IFRS. Normalised Income Profit and Normalised Total Profit have been defined in note 4 and adjusted EPS is defined below.
Group 2018 2017
Weighted Weighted
average average
number Earnings number Earnings
of per of per
Earnings shares share Earnings shares share
Continuing GBPm m pence GBPm m pence
operations
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Normalised Income Profit
(see
note 4) 25.8 412.6 6.3 31.3 725.1 4.3
Normalised Total Profit
(see
note 4) 45.8 412.6 11.1 37.5 725.1 5.2
Basic EPS 59.5 412.6 14.4 70.9 725.1 9.8
Adjustments:
Dilutive
shares
relating to
the
performance
share plan 3.9 2.8
Dilutive
shares
relating to
the Founder
LTIP 43.6 6.4
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Diluted EPS 59.5 460.1 12.9 70.9 734.3 9.7
Basic EPS 59.5 412.6 14.4 70.9 725.1 9.8
Adjustments:
Revaluation gains on
investment
properties (39.6) (62.0)
Profit on the sale of
investment
properties (19.5) (5.9)
Profit on sale of trading
properties 0.1
Change in fair value of
derivatives (0.4) (0.5)
Change in fair value of
convertible
bonds (excluding foreign
exchange) - 9.6
Deferred tax on the above
items 0.2 (1.0)
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
EPRA EPS 0.2 412.6 0.1 11.2 725.1 1.5
Adjustments:
Dilutive
shares
relating to
the
performance
share plan 3.9 2.8
Dilutive
shares
relating to
the Founder
LTIP 43.6 6.4
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Diluted EPRA
EPS 0.2 460.1 0.1 11.2 734.3 1.5
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Founder LTIP
charge 25.9 (43.6) 19.1 (6.4)
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Adjusted EPS* 26.1 416.5 6.3 30.3 727.9 4.2
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Group 2018 2017
Weighted Weighted
average average
number Earnings number Earnings
of per of per
Earnings shares share Earnings shares share
Discontinued GBPm m pence GBPm m pence
operations
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Normalised Income Profit
(see
note 4) 0.6 412.6 0.1 20.6 725.1 2.8
Normalised Total Profit
(see
note 4) 0.4 412.6 0.1 70.1 725.1 9.7
Basic EPS 1.9 412.6 0.5 133.2 725.1 18.4
Adjustments:
Dilutive
shares
relating to
the
performance
share plan 3.9 2.8
Dilutive
shares
relating to
the Founder
LTIP 43.6 6.4
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Diluted EPS 1.9 460.1 0.4 133.2 734.3 18.1
Basic EPS 1.9 412.6 0.5 133.2 725.1 18.4
Adjustments:
Profit on the sale of
investment
properties - (0.1)
Profit after tax on
disposal
of discontinued
operations (1.4) (113.7)
Change in fair value of
derivatives - (0.7)
Deferred tax on the above
items - 0.8
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
EPRA EPS 0.5 412.6 0.1 19.5 725.1 2.7
Adjustments:
Dilutive
shares
relating to
the
performance
share plan 3.9 2.8
Dilutive
shares
relating to
the Founder
LTIP 43.6 6.4
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Diluted EPRA
EPS 0.5 460.1 0.1 19.5 734.3 2.7
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Founder LTIP
charge - (43.6) - (6.4)
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Adjusted EPS* 0.5 416.5 0.1 19.5 727.9 2.7
------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
*Diluted EPRA EPS has been adjusted to exclude the impact of the Founder LTIP charge on the earnings per share.
The calculations for net asset value (NAV) per share are shown in the table below:
Group 2018 2017
Net Net
asset asset
Equity Number value Equity Number value
shareholders' of per shareholders' of per
funds shares share funds shares share
GBPm m pence GBPm m pence
------------------------- ------------------------- ------------------ ----------------- ------------------------- ------------------ -----------------
Basic NAV 470.1 455.3 103.3 557.5 412.8 135.1
Unexercised
share
options 3.9 - 15.5
Diluted NAV 470.1 459.2 102.4 557.5 428.3 130.2
Adjustments:
Fair value of
interest
rate
derivatives (2.7) (2.2)
Deferred tax 4.1 4.1
------------------------- ------------------------- ------------------ ----------------- ------------------------- ------------------ -----------------
EPRA NAV 471.5 459.2 102.7 559.4 428.3 130.6
------------------------- ------------------------- ------------------ ----------------- ------------------------- ------------------ -----------------
In 2017 unexercised share options of 15.5 million shares contained
13.0 million shares in relation to the Founder LTIP awards and 2.5
million shares in relation to the Performance Share Plan awards. In
2018 the Founder LTIP shares are included in the Basic NAV number
of shares and 3.9 million shares under unexercised share options is
in relation to the Performance Share Plan.
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
2018 2017
GBPm GBPm
------------------------------------------------------------- ----------------- -----------------
Revenue 0.3 35.8
Cost of sales 0.2 (4.2)
-------------------------------------------------------------- ----------------- -----------------
Gross profit 0.5 31.6
Administrative expenses (0.4) (4.4)
Other operating income - 0.2
Gains on investment properties - 0.1
Operating profit 0.1 27.5
Finance income 0.5 0.7
Finance costs - (6.6)
Profit before tax 0.6 21.6
Tax (0.1) (2.1)
-------------------------------------------------------------- ----------------- -----------------
Profit after tax 0.5 19.5
(Loss)/profit on disposal of discontinued
operations (0.1) 121.4
Tax attributable to profit on disposal 1.5 (7.7)
-------------------------------------------------------------- ----------------- -----------------
Profit after tax on disposal of discontinued
operations 1.4 113.7
-------------------------------------------------------------- ----------------- -----------------
Profit for the year from discontinued operations 1.9 133.2
-------------------------------------------------------------- ----------------- -----------------
Included in the profit on disposal of discontinued operations of GBP121.4 million for 2017 is GBP49.2 million profit on disposal of discontinued operations and exchange differences recycled on disposal of discontinued operations of GBP72.2 million.
11. Disposal of subsidiary
On 27 March 2018 the Group disposed of its investment in Industrial Multi Property Trust plc. The net assets at the date of disposal were as follows:
2018
GBPm
---------------------------------------------------------------- -----------------
Investment properties 116.0
Trade and other receivables 2.5
Cash and cash equivalents 2.5
Trade and other payables (2.9)
Net assets disposed 118.1
Cash proceeds net of transaction costs 118.1
------------------------------------------------------------------ -----------------
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents 118.1
Less: cash and cash equivalents disposed of (2.5)
------------------------------------------------------------------ -----------------
115.6
---------------------------------------------------------------- -----------------
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:
2017
GBPm
---------------------------------------------------------------- -----------------
Investment properties 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 properties
Group Group
2018 2017
Continuing Discontinued Continuing Discontinued
operations operations operations operations
GBPm GBPm GBPm GBPm
----------------------------------------- ---------------------- ------------------------ ---------------------- ------------------------
At 1 January 694.2 - 698.5 1,019.0
Additions - property
purchases* 56.9 - 91.2 13.0
- capital
expenditure 5.6 (0.3) 4.7 15.4
Lease incentives 0.7 - 1.4 (0.1)
Letting costs 0.1 - 0.1 0.2
Revaluation 39.6 - 62.0 -
Disposals (157.4) 0.3 (50.9) (1,067.7)
Transfer to investment
properties
held for sale (13.0) - (113.9) -
Exchange adjustment 0.3 - 1.1 20.2
----------------------------------------- ---------------------- ------------------------ ---------------------- ------------------------
627.0 - 694.2 -
Head leases 2.2 - - -
At 31 December 629.2 - 694.2 -
----------------------------------------- ---------------------- ------------------------ ---------------------- ------------------------
Investment property held for
sale:
At 1 January 113.9 - 3.0 7.4
Disposals (113.9) - (3.0) (7.4)
Transfer from investment properties 13.0 - 113.9 -
At 31 December 13.0 - 113.9 -
----------------------------------------- ---------------------- ------------------------ ---------------------- ------------------------
*Property purchase additions of GBP91.2 million in 2017 includes GBP88.8 million which relates to the acquisition of Industrial Multi Property Trust plc.
Included within the property valuation is GBP5.6 million (2017: GBP5.9 million) in respect of tenant lease incentives granted. Investment properties before head leases includes GBP1.5 million of property (2017: GBP2.0 million) held under the Belgium finance lease.
Properties classified as held for sale at 31 December 2018 represent properties that were actively marketed as at the year end and have subsequently been sold.
All investment properties, excluding head leases, have been valued by independent professionally qualified external valuers Cushman & Wakefield Debenham Tie Leung Limited, Jones Lang LaSalle or Knight Frank LLP and are stated at fair value as at 31 December. 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 and 14).
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 2018 is categorised as Level 3 (31 December 2017: 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 Rent per sq m Yield
value at
31 December 2018 Min Max Min Max
GBPm GBP GBP % %
----------------------- --------------------- ------------ ------------- ---------------- --------------------
Belgium 12.9 29.6 110.9 4.4 11.5
France 14.3 31.0 31.0 8.4 8.4
UK -
Industrial
properties 587.3 14.1 152.0 2.1 17.5
UK - Offices 27.7 33.4 625.7 2.9 18.1
------------------------
Total 642.2
------------------------ --------------------- ------------ ------------- ---------------- --------------------
Fair Rent per sq m Yield
value at
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
------------------------ --------------------- ------------ ------------- ---------------- --------------------
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 2018, the Group had entered into contracts for GBP0.4 million (2017: GBP0.2 million) of building works that were not complete.
13. Borrowings
Group Group
2018 2017
GBPm GBPm
------------------------------------ ----------------- -----------------
Bank loans 245.5 297.1
Unamortised borrowing costs (1.9) (3.0)
-------------------------------------- ----------------- -----------------
243.6 294.1
------------------------------------ ----------------- -----------------
Current liability 0.3 0.3
Non-current liability 243.3 293.8
-------------------------------------- ----------------- -----------------
The bank loans are repayable as
follows:
Within one year or on demand 0.7 0.6
Between one and two years 0.7 0.7
Between three and five years 243.6 294.9
Over five years 0.5 0.9
-------------------------------------- ----------------- -----------------
245.5 297.1
------------------------------------ ----------------- -----------------
Undrawn committed facilities
Expiring between two and five years 88.0 37.0
-------------------------------------- ----------------- -----------------
Covenants
Facility Drawn Expiry Loan to value Interest
cover
------------------ ------------------ ---------- ------------- --------
GBP330.0 million GBP242.0 million July 2021 55% 200%
EUR3.9 million EUR3.9 million March 2025 - -
------------------ ------------------ ---------- ------------- --------
Interest charged on the GBP330.0 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 GBP602.6 million (2017: GBP638.7 million). The Euro facilities detailed above are secured by charges on property with an aggregate carrying value of GBP12.0 million (2017: GBP13.6 million).
The carrying amount of borrowings approximates their fair value.
Interest rate and currency profile
Group 2018 2018 2017 2017
% GBPm % GBPm
--------------------- ---------------- ---------------- ---------------- ----------------
Euro 1.5 3.5 1.5 4.1
Sterling 2.7 242.0 2.1 293.0
---------------------- ---------------- ---------------- ---------------- ----------------
2.6 245.5 2.1 297.1
--------------------- ---------------- ---------------- ---------------- ----------------
The above table details the interest rates charged on the outstanding loans as at 31 December 2018. 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 (2017: 1.5%) and 2.7% for the Sterling borrowings (2017: 2.4%).
14. Lease liabilities
2018 2017
Belgium Head Other Total Belgium
lease leases leases lease
GBPm GBPm GBPm GBPm GBPm
------------------------- ------------------- ------------------ ------------------ ----------------- -------------------
Amounts
payable under
lease
liabilities:
Within one
year 0.2 - 0.6 0.8 0.2
In the second
to fifth
years
inclusive 2.0 - 0.4 2.4 0.9
After five
years - 2.2 - 2.2 1.4
------------------------- ------------------- ------------------ ------------------ ----------------- -------------------
Present value
of lease
obligations 2.2 2.2 1.0 5.4 2.5
------------------------- ------------------- ------------------ ------------------ ----------------- -------------------
Non-current 2.0 2.2 0.4 4.6 2.3
Current 0.2 - 0.6 0.8 0.2
------------------------- ------------------- ------------------ ------------------ ----------------- -------------------
The Belgium finance lease is denominated in Euro and has an outstanding term of 4 years (2017: 5 years). For the year ended 31 December 2018 the interest rate implicit in the lease was 1.7% (2017: 2.8%). Interest rates are fixed every five years, and interest rate and capital repayments adjusted to reflect this. The Group's obligations under the finance lease are secured by the lessors' rights over the leased assets.
The Group adopted IFRS 16 on 1 January 2018 and has applied the modified retrospective approach rather than the full retrospective approach therefore there has been no restatement to the comparative information.
The Group leases various assets under property, plant and equipment including office buildings, office equipment and motor vehicles. The average lease term is 4 years.
The Group has a number of head leases which are presented as investment properties. The average lease term is 96 years. One head lease contains variable lease payment terms which are based on the sales generated by the leased property. The variable portion of the lease payments is as follows:
2018 2017
GBPm GBPm
-------------------------------- ---------------- ----------------
Fixed payments 1.0 -
Variable payments 0.1 -
--------------------------------- ---------------- ----------------
Total payments 1.1 -
Percentage variable 9.1% -%
--------------------------------- ---------------- ----------------
The total cash outflow for all leases amounts to GBP1.0 million.
The weighted average discount rate applied to the portfolio is 6.41%.
The fair value of the Group's lease obligations approximates to their carrying amount.
15. Share capital
31
Number of December Number of 31 December
shares 2018 shares 2017
m GBPm m GBPm
----------------------- --------------------- ---------------------- --------------------- -----------------------
Authorised, issued and
fully paid
ordinary shares of 10p
each
At 1 January 413.1 41.3 745.8 74.6
Issue of equity shares - - 80.2 8.0
Cancellation of shares
under tender
offer - - (412.9) (41.3)
At 31 December 413.1 41.3 413.1 41.3
----------------------- --------------------- ---------------------- --------------------- -----------------------
The share capital comprises one class of ordinary shares carrying no right to fixed income. There are no specific restrictions on the size of a shareholding or the transfer of shares, except for UK REIT restrictions.
The issue of 80.2 million equity shares in 2017 relates to the conversion of the convertible bonds on 10 July 2017. The cancellation of 412.9 million shares under tender offer in 2017 was completed on 8 November 2017 following the publication of a circular and a successful tender offer. The shares were purchased at the tender offer price of 140 pence per Ordinary Share, representing a par value of GBP41.3 million and a total gross cost of GBP583.1 million (GBP578.1 million return to shareholders and GBP5.0 million associated costs). The GBP41.3 million was transferred to the capital redemption reserve as required by the Companies Act. The capital redemption reserve was cancelled and the balance returned to shareholders in May 2018.
During the year, the Company acquired some of its own shares in order to settle obligations under the Performance Share Plan.
Proportion
of subscribed Nominal
Number capital value Consideration
m % GBPm GBPm
-------------------- ------ -------------- ------- -------------
At 1 January 2018 (0.1) 0.03% - (0.1)
Acquired
4 April 2018 (0.7) 0.17% - (0.9)
16 October 2018 (1.2) 0.28% (0.1) (1.2)
Issued to employees
13 April 2018 0.4 0.10% - 0.5
6 October 2018 0.3 0.08% - 0.4
At 31 December 2018 (1.3) 0.31% (0.1) (1.3)
-------------------- ------ -------------- ------- -------------
16. Notes to the cash flow statement
Group Group
2018 2017
GBPm GBPm
------------------------------------------------------ ----------------- -----------------
Profit for the year 61.4 204.3
Adjustments for:
Share-based payments - continuing
operations 23.6 17.8
Share-based payments - discontinued
operations - 0.1
Depreciation of property, plant and
equipment -
continuing operations 0.6 0.2
Loss/(profit) on sale of discontinued
operations 0.1 (121.4)
Profit on sale of investment properties
- continuing operations (19.5) (5.9)
Profit on sale of investment properties
- discontinued operations - (0.1)
Fair value gains on investment properties
- continuing operations (39.6) (62.0)
Net finance costs - continuing operations 8.3 19.4
Net finance costs - discontinued
operations (0.5) 5.9
Tax charge - continuing operations - (0.8)
Tax (credit)/charge - discontinued
operations (1.4) 9.8
--------------------------------------------------------
Operating cash inflows before movements
in working capital 33.0 67.3
Increase in receivables (5.4) (2.3)
Decrease in payables (0.6) (1.9)
-------------------------------------------------------- ----------------- -----------------
Cash generated from operations 27.0 63.1
Income taxes paid (19.4) (4.6)
Interest paid (7.2) (13.3)
-------------------------------------------------------- ----------------- -----------------
Net cash inflow from operating activities 0.4 45.2
-------------------------------------------------------- ----------------- -----------------
The liabilities arising from financing activities are reconciled as follows:
Non-cash changes
-----------------------------------------------------------------------------------------
1 Fair 31
January Cash Foreign value Bonds December
2018 flows Acquisition exchange changes converted Other 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------------- ----------------- ----------------------- -------------------- ------------------- --------------------- ---------------------------- --------------------
Long-term
borrowings 293.8 (51.6) 0.2 - - - 0.9 243.3
Short-term
borrowings 0.3 - - - - - - 0.3
Lease liabilities 2.5 (0.8) 3.7 - - - - 5.4
Assets held
to hedge long-term
borrowings (2.2) - - - (0.5) - - (2.7)
294.4 (52.4) 3.9 - (0.5) - 0.9 246.3
----------------------- ------------------- ----------------- ----------------------- -------------------- ------------------- --------------------- ---------------------------- --------------------
Non-cash changes
1 Fair 31
January Cash Foreign value Bonds December
2017 flows Acquisition exchange changes converted Other 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
----------------------- ------------------- ----------------- ----------------------- -------------------- ------------------- --------------------- --------------------- --------------------
17. Share-based payments
During the year ended 31 December 2018, 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 GBP23.6 million (2017: GBP18.0 million) with associated social security costs of GBP3.5 million (2017: GBP2.5 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 current performance period runs from 1 January 2016 to 31 December 2018 and the Founder LTIP will be terminated at the end of this performance period.
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 price per share to be used when determining the number of shares which the Joint Chief Executives are entitled to is 90.488p being the average mid-market quotation for such shares on the Main Market for the first 20 dealing days immediately following the end of the relevant period. The excess growth in EPRA NAV over the performance target over the performance period was GBP157.8 million and as such each Joint Chief Executive is entitled to 21,797,715 ordinary shares in the Company.
The Joint Chief Executives have agreed to forgo part of their awards equal in value to their PAYE and National Insurance Contributions due on the vesting of the awards, which will be settled on their behalf by the Company. After settlement of these liabilities, each of the Joint Chief Executives will receive 11,552,789 ordinary shares. The PAYE and employer's and employee's national insurance liabilities due on the vesting of the Founder LTIP awards comprises GBP18,540,755 in respect of the PAYE and employee's national insurance liabilities, GBP5,443,881 in respect of the employer's national insurance liabilities and GBP197,242 in respect of the apprenticeship levy. The actual amounts payable will be based on the share price when the Founder LTIP awards vest on approval by the Board of the audited accounts of the Company for the year ending 31 December 2018.
The total share-based payment charge for the year under this scheme was GBP22.6 million (2017: GBP16.8 million) with associated social security costs of GBP3.3 million (2017: 2.3 million).
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. 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.
Average
Outstanding Outstanding remaining
Year Exercise at start Granted Lapsed at end Number life
issued price of year Exercised of year exercisable (years)
------------------- --------------------- ----------------------- -------------------- --------------------- ------------------- ------------------------ ----------------------- ---------------------
2013 nil 138,051 - (138,051) - - - 4.2
2014 nil 298,959 51,152 (149,480) - 200,631 - 5.3
2015 nil 878,253 200,360 (292,751) - 785,862 - 6.2
2016 nil 1,068,291 365,569 - - 1,433,860 - 7.3
2017 nil 595,473 203,770 - - 799,243 - 8.3
2018 nil - 912,352 - - 912,352 - 9.3
------------------- --------------------- ----------------------- -------------------- --------------------- ------------------- ------------------------ ----------------------- ---------------------
On 3 May 2018 the Company completed a GBP144.5 million return of capital equating to 35p per share to the shareholders. As the holders of these outstanding PSP awards and of previous PSP awards which had vested but were not exercisable could not participate in the return of capital, the number of ordinary shares subject to their awards were also amended so they were not disadvantaged As a result, 251,512 ordinary shares were added to the awards over 734,981 ordinary shares which had vested but were not exercisable, and 801,947 ordinary shares were added to the awards over 2,343,508 ordinary shares which were unvested and subject to performance measures.
The total share-based payment charge for the year under this scheme was GBP1.0 million (2017: GBP1.1 million) with associated social security costs of GBP0.2 million (2017: GBP0.2 million).
The inputs to the PSP awards share options' valuation were:
2018 2017
---------------------------------------------- ------------------- -------------------
Closing share price at grant date 129.6p 124.7p
Weighted average exercise price nil nil
Weighted average fair value 89.2p 98.8p
Expected volatility 24.37% 24.19%
Expected life 5 years 5 years
Risk free rate 0.89% 0.65%
----------------------------------------------- ------------------- -------------------
Expected volatility was calculated by reference to dividend adjusted share prices for a comparator group of companies.
18. Events after the balance sheet date
A second dividend in respect of the year ended 31 December 2018 of 3.8p per share will be payable on 17 May 2019 to shareholders on the register on 5 April 2019. Based on the number of shares in issue at 31 December 2018 this will result in a distribution of GBP15.6 million.
glossary
Adjusted EPS
EPRA EPS adjusted to exclude the fair value of the Founder LTIP charge and the dilutive impact of the Founder LTIP shares.
AGM
Annual General Meeting.
AIM
Alternative Investment Market.
Annualised rental income
Passing rent.
APMs
Alternative Performance Measures.
Built portfolio
The value of Investment Properties at the balance sheet date excluding the value of land.
Contracted rent
Contracted rent is the passing rent adjusted for the inclusion of rent subject to rent free periods.
Earnings per share (EPS)
Profit for the period after tax attributable to members of the Company divided by the weighted average number of shares in issue during the period.
EPRA
The European Public Real Estate Association, a real estate industry body, which has issued Best Practices Recommendations in order to provide consistency and transparency in real estate reporting across Europe.
EPRA earnings
IFRS profit after taxation, excluding movements relating to changes in values of investment properties, gains/losses on investment property disposals, changes in the fair value of financial instruments and the related tax effects.
EPRA earnings per share (EPRA EPS)
EPRA earnings, divided by the weighted average number of shares in issue during the period.
EPRA net asset value (EPRA NAV)
A measure of NAV designed by EPRA representing the IFRS net assets, excluding the mark-to-market on derivatives and related debt adjustments, the mark-to-market on the convertible bonds as well as deferred taxation on property and derivative valuations.
EPRA NAV per share
EPRA NAV divided by the number of shares in issue at the balance sheet date plus the number of dilutive share options.
ERV
The estimated annual market rental value of lettable space as assessed biannually by the external valuer.
Founder Long-term Incentive Plan (Founder LTIP)
A Long-term Incentive Plan put in place for the Joint Chief Executives at the Initial Public Offering in 2005. To the extent that growth in EPRA NAV plus dividends and other returns to shareholders exceeds 10% per annum compound over three years, the Joint Chief Executives will each receive shares equating to 12.5% of the out-performance. The Joint Chief Executives have agreed that the Plan will terminate following the performance period culminated at 31 December 2018 without compensation.
Group
Hansteen Holdings PLC and its subsidiaries.
IFRS
International Financial Reporting Standards adopted for use in the European Union.
IPO
Initial Public Offering.
Key performance indicators (KPIs)
The Directors consider the following to be key performance indicators (KPIs):
Continuing Continuing
operations operations
operations
Key performance indicator 2018 2017
----------- -----------
Normalised Income Profit GBP25.8m GBP31.3m
----------- -----------
Normalised Total Profit GBP45.8m GBP37.5m
----------- -----------
IFRS Net asset value (NAV) per share 103.3p 135.1p
----------- -----------
EPRA NAV (per share) 102.7p 130.6p
----------- -----------
Annualised rental income GBP46.1m GBP57.5m
----------- -----------
Net debt to value 29.7% 27.6%
----------- -----------
Dividend (per share) 6.2p 6.1p
----------- -----------
Yield 7.6% 7.5%
----------- -----------
Occupancy (area) 91.3% 92.3%
----------- -----------
Like-for-like increase in contracted rent
A measure of portfolio performance calculated by taking the contracted rent at the start of the period, adding contracted rent from purchases, deducting contracted rent lost from sales and then comparing that with the contracted rent at the end of the period.
Like-for-like property valuation increase
The fair value gains during the period on investment properties held at the balance sheet date. A measure of value growth calculated by taking the property valuation at the start of the period, adding the cost of property purchases and capital expenditure incurred during the period, deducting the value of property disposals during the period and then comparing that with the property valuation at the end of the period.
NAV
Net asset value.
NAV per share
Net asset value divided by the number of shares outstanding at the balance sheet date.
Net debt
Borrowings including lease liabilities less cash and cash equivalents.
Net debt to property value ratio
Net debt divided by the carrying value of investment property and investment property held for sale.
Net initial yield (NIY)
Passing rent at the point of acquisition expressed as a percentage of the total acquisition cost (including taxes and fees).
Normalised Income Profit (NIP)
As measure designed to reflect the underlying realised profits before considering property and other revaluation movements. Calculated by deducting direct operating expenses, administrative expenses and net interest payable from investment property rental income.
Normalised Total Profit (NTP)
A further measure designed to reflect the underlying realised profits before considering property and other revaluation movements. Calculated by adding profits or losses from the sale of properties and other realised one-off items to the Normalised Income Profit.
Occupancy
Total area of let units as a percentage of the total area of all lettable units.
Passing rent
Gross annual rental income currently receivable on a cash basis as at the balance sheet date less any ground rents payable under head leases.
Property income distribution (PID)
Profits distributed to shareholders which are subject to tax in the hands of the shareholders as property income.
RCF
Revolving credit facility.
Rent roll
Contracted rent.
Total return to shareholders
A measure of return based on the movement in EPRA NAV over a period plus dividends paid and capital returned in the period, expressed as a percentage of the EPRA NAV at the start of the period.
Underlying NAV growth
Measured by taking the EPRA NAV per share at 31 December 2018, adding back the return of capital during the year and comparing this with the EPRA NAV at 31 December 2017.
Weighted average unexpired lease term (WAULT)
The average lease term remaining to first break, or expiry, across the portfolio weighted by contracted rental income (including rent- free periods).
Yield
Passing rent on investment properties at the balance sheet date, expressed as a percentage of the investment property valuation at the balance sheet date.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR UURKRKSAOUAR
(END) Dow Jones Newswires
March 25, 2019 03:00 ET (07:00 GMT)
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