Hansteen Holdings PLC Holdings Hansteen 2015 Annual Report and Accounts and Annual Report 2015 2015 Annual Report and Accounts Our history Key developments and milestones Morgan Jones and Ian Watson have Since 2005, Hansteen has built up a been Joint Chief Executives of Hansteen substantial and profitable portfolio Holdings since launching of industrial investment properties in the Company on AIM in 2005. Germany, the UK, Netherlands, Belgium and France. Prior to establishing Hansteen, Ian and 2007 Morgan founded Ashtenne Holdings as Joint Chief Executives from 1989 until its sale to Warner Estates in 2005. 2005 With more than 25 years’ experience in investing in the industrial property market, both have a proven track record April: Completion of secondary in identifying opportunities requiring placing for an additional intensive management and realising value for their investors. First acquisitions with the purchase £70m of four industrial portfolios located in Germany and the Netherlands for July: 66 properties acquired in 37 transactions, totalling €73m €300m Dealings commence in Hansteen shares following £125m float on AIM Long-term performance Dividends 2006 3.0p Hansteen has been in business now for ten years, from 2007 3.2p December 2005. This was a period that was particularly 2008 3.2p difficult for property companies. 2009 3.2p 75% 2010 3.5p Growth in Many property companies lost material value, were forced dividends 2011 sellers or required rescue rights issues during the financial 4.0p crisis of 2008 to 2012. Hansteen though performed well 2012 4.5p throughout this period; realised profits grew consistently 2013 4.8p and we were able to buy many property portfolios at 2014 5.0p* distressed prices from businesses in difficulty. 2015 5.25p * in addition to the ongoing dividend of 5.0p, a special dividend of Hansteen’s performance, measured by £100 invested at the 3.0p per share was declared in 2014 time of the Company’s initial public offering in 2005, ranks in the top five out of the 120 property companies publicly quoted at the time or floated in 2006. Equally notable is the robust character of Hansteen’s returns relative to this peer group. Over the period in question, Hansteen was unique in terms of maintaining covered dividend growth and a lower downward volatility of share price. 2015 2012 2009 May: Hansteen sells HPUT II for June: Full management platform £192.1m established in Germany, UK, and Benelux August: Acquisition of Ashtenne Industrial Fund Units for £103.7m July: Share issue raises increasing Hansteen ownership gross proceeds of December: Property portfolio under management exceeds to 76.5% September: Acquisition of two £200.8m UK industrial estates for £40.6m in successful placing and open offer £1bn December: EPRA net asset August: Launch of the Hansteen UK value per share growth of Industrial Property Unit Trust with five institutional investors £78m of acquisitions completed 9% October: Hansteen moves from AIM to 111p to the Official List and becomes a REIT IFRS profit before tax £51m increased by of disposals completed 30.6% to £171.4m Hansteen Holdings PLC is a leading P06–11 / Joint Chief Executives’ statement Strategic report Strategic Joint Chief Executives’ statement Governance Hansteen’s business model is to buy high-yielding assets, 2015 2014 Our report marks the tenth year of business for (normally multi-let or single-let industrial properties) that £m £m Hansteen Holdings. The report covers the financial are undermanaged and undervalued. We intensively asset Rental income 81.2 78.8 owner and asset manager of a very manage the properties to increase the income and value Cost of sales (12.5) (14.3) results for 2015, property performance in 2015, with the aim of selling within a three to five year period. Returns come from surplus rental income and selling at Management fees 4.1 6.0 followed by information on the long-term performance increased value. We supplement this business model with Share of associates 12.1 10.8 of the business, and concludes with our view of the other opportunity types where we think good profits can be Overheads (18.9) (20.0) statementsFinancial made, including deals in other sectors, especially land where prospects for the business. we believe we can make planning gains. Net interest payable (18.8) (13.1) Normalised Income Profit 47.2 48.2 Financial results for 2015 Profit on sale of properties 14.5 10.3 Returns from property can be “realised”, i.e. the surplus of rent, sales proceeds or other income over cost, or Other operating income 1.5 6.8 “unrealised”, i.e. valuation growth. We believe that the Ian Watson Normalised Total Profit 63.2 65.3 best measurements of performance are Normalised Joint Chief Executive Profits (our measure of underlying realised profits) and EPRA NAV per share as detailed below. We believe that the best measure of value growth is EPRA NAV per share plus dividends. During 2015, EPRA NAV diverse portfolio of European industrial Normalised Income Profit (“NIP”), recurring earnings increased from 101.7p to 111.2p and in addition there was excluding profits or losses from the sale of properties, both an ordinary dividend and a special dividend, together for the year to 31 December 2015, was £47.2 million totalling 8.1p. This performance equates to a Total Annual (2014: £48.2 million). Normalised Total Profit (“NTP”), Return of 17.3%. This is despite the adverse effect of the comprising NIP plus profits or losses from the sale exchange rate and after fully providing for the Founder of properties and realised profits from one off Long Term Incentive Plan (“Founder LTIP”). items, was £63.2 million (2014: £65.3 million). More details of the financial performance are contained in In our Financial statements, transactions which we carry the Financial review. out in euros are translated into sterling at the average exchange rate during the year. In 2015 there was a significant fall in the value of the euro. The average euro Case study exchange rate was 1.3775 euros to the pound in 2015 and West Hallam 1.2409 in 2014 which resulted in a reduction in the NIP of £4.8 million and a reduction of £5.3 million in the NTP. Based on the same exchange rate as in 2014, the NIP would have Morgan Jones We look for investments property, mainly located in Germany, been 10.6% higher at £52.2 million (2014: £48.2 million), and Joint Chief Executive the NTP would have been 8.4% higher at £68.5 million that are priced attractively (2014: £65.3 million). and which will create a In addition to the currency effect, comparisons between sustainable and high-yielding 2015 and 2014 are further complicated by one-off transactions in 2014. In 2014 Hansteen acquired a bank industrial property portfolio. loan at a discount which enabled it to acquire the HBI Netherlands portfolio. The unwinding of the discount on We also assess other more opportunistic and the bank loan resulted in a reduction in net interest payable management intensive acquisitions which, (included in NIP), of £4.0 million and a £3.4 million gain although lower yielding, will provide greater (included in NTP) relating to the repayment of the loan. In potential for capital growth. 2015 the portfolio showed further material value growth but because we owned the properties rather than the loan, that A good example of this is the purchase of growth is shown as part of the revaluation gain rather than West Hallam Industrial Estate, Ilkeston, in South as part of NTP. Derbyshire which took place in September the UK and the Netherlands. 2015 for £26.8 million, reflecting a yield of 6.4%. NTP plus property valuation gains gave a return of £205.6 The estate covers 118 acres and includes 106 million (2014: £153.8 million). IFRS profit before tax was £171.4 buildings, totalling 1.28 million sq ft, and benefits from million (2014: £131.2 million). large areas of open storage land. The entire site is let to Norbert Dentressangle, on two agreements, The following table sets out the results for Normalised and produces a total annual income of £1.7 million. Income Profit and Normalised Total Profit including the We believe that the property is highly reversionary Group’s share of Associates: with a number of value-adding asset management strategies to be pursued over the next few years. See our Business model on page 16 06 Hansteen Holdings PLC Annual Report and Accounts 2015 Hansteen Holdings PLC Annual Report and Accounts 2015 07 We look for investments that are priced attractively and P12–13 / Our strategy which will create a sustainable and high-yielding industrial report Strategic Our strategy Governance property portfolio. There are few equivalent platforms Hansteen Holdings is a leading owner and asset manager of a very diverse portfolio of European industrial property, mainly located in Germany, the UK and the Netherlands. Our core mission is to provide to Hansteen’s in the high-yielding property sector. investors with consistent, high and realised returns. statements Financial Strategic 1 Aquire selectively 2 Manage intensively 3 Increase values 4 Realise and distribute profits priorities We are an entrepreneurial Our locally-based, in-house, After purchase we aim to We focus on realised returns investor who looks for asset management teams have maximise rental income and through rental income and opportunistic investments the skills to meet the most occupancy through active profit on sales generated from that will create a high-yielding complex occupier requirements asset management initiatives a strong and diversified tenant property portfolio and improve occupancy leading to increased values base.