27 August 2015

Hansteen Holdings PLC

("Hansteen" or the "Group" or the "Company")

HALF YEAR RESULTS

Hansteen (LSE: HSTN), the investor in UK and continental European industrial property, announces its half year results for the six months ended 30 June 2015.

Financial Highlights

·      IFRS pre-tax profit increased by 55.5% to £103.7 million (H1 2014: £66.7 million)

·      Normalised Total Profit ("NTP") plus property revaluation of 16p per share

·      EPRA NAV per share increased to 103p (31 December 2014: 102p) *

·      Normalised Income Profit ("NIP") of £22.8 million (H1 2014: £25.1 million)

·      NTP of £30.1 million (H1 2014: £35.0 million)

·      November interim dividend increased by 5.1% to 2.1p per share (November 2014: 2.0p per share)

·      Net debt to property value ratio 36.1% (31 December 2014: 41.1%)

Operational Highlights

·      Property valuation increase across the attributable portfolio of 7.8% or £87.6 million (H1 2014: 3.7% or £43.1 million)

·      Sale of HPUT2 for £192.1 million an uplift over total cost of £31.7 million

·      £21.5 million other sales from the Total portfolio** generating profit over 31 December 2014 valuation of £1.8 million

·      £22.3 million of property acquired in the year to date at an average yield of 11.0% and a vacancy of 16.9%

·      Acquisition of a further 4.1% stake in the Ashtenne Industrial Fund ('AIF') for £11.0 million increasing ownership to 40.8%, announced in February 2015

·      Like-for-like occupancy improvement across the Total portfolio** of 34,862 sq m or 5.9% of  vacancy at the start of the year

Post balance sheet events

·      Announced intention to raise £40.0 million

·      Acquisition of a further 35.7% stake in AIF for £103.7 million increasing ownership to 76.5%

* See EPRA NAV bridge chart below

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

James Hambro, Chairman, commented: "The outlook for the business continues to be positive.  We have a high yielding diverse portfolio of properties most of which were purchased at a relative low point in the cycle and has shown material growth in occupancy, the rent roll and value since.  We believe that there is further such growth still to come, accelerated by the proven ability of our Pan-European network of offices and people to maximise occupancy and value.  Whilst the recent issues affecting the Eurozone and the Euro are unhelpful, our view is that once the immediate volatility calms down the longer term effect is likely to reinforce the 'lower for longer' financial environment.  This should continue to fuel the current 'search for yield' by investors leading to further increases in liquidity and value in our sector". 

There will be a meeting for analysts (with dial-in facility and webex) at 9.30 a.m. to be held at Tavistock, 131 Finsbury Pavement, London EC2A 1NT. For details please contact Jeremy Carey or Faye Walters on 020 7920 3150.

For more information:

CHAIRMAN'S INTERIM STATEMENT 

I am pleased to present our interim results for the six months to 30 June 2015 which show strong profits and record underlying value growth.

Pre-tax profits increased by 55.5% to £103.7 million (H1 2014: £66.7 million), with property revaluation adding 12p per share. The increased profits are in spite of a significant weakening of the Euro against Sterling during the period (9.9%).  To put the currency movement into perspective, if the exchange rate at 30 June 2015 had been the same as at 31 December 2014, the rent roll on Hansteen's attributable portfolio would have been £6.8 million higher and the value of Hansteen's attributable portfolio would have been £85.2 million higher.

Our strategy is to provide our Shareholders with consistent high and largely realised returns from investing in and improving undervalued industrial property in the UK and Continental Europe.  Ours is a buy, work and sell model. During the early part of the current property cycle (2008 - 2013), although Hansteen both bought and sold property, acquisitions exceeded disposals by nearly £1 billion. As the cycle has turned up, the relationship between purchases and sales has changed as the Company has realised some of the value that has been created.  In 2014, for the first time in this cycle, we sold more than we purchased.  This dynamic continued in the first half of 2015 with sales from the Total portfolio (i.e. property, owned and managed, of Hansteen and its associated funds) of £213.6 million and purchases of £22.3 million. We are particularly happy about the sale of HPUT2 for £192.1 million. HPUT2 was a joint venture between Hansteen and clients of Aviva investors where Hansteen was both co-investor and asset manager.  The sale price was an uplift of £31.7 million over the historic acquisition costs plus subsequent capital expenditure. The annualised return to HPUT2 investors was over 27%.

Although good acquisition opportunities are scarce, we are delighted to have been able to negotiate the off market acquisition of 35.7% of the units in AIF for £103.7 million as announced today. This acquisition will be accretive to both profits and NAV this year and we expect further growth in 2016. 

Hansteen now holds a 76.5% stake in AIF following the original acquisition of 27.5%, announced in August 2013 (at which stage the Company also took over the asset management of AIF), the additional 9.2% stake purchased in March 2014, a further 4.1% stake purchased for £11.0 million in February 2015 and the acquisition of the 35.7% stake announced today. At 30 June 2015 AIF's portfolio was valued at £439.3 million with a yield on the passing rent of 8.3% and a reversionary yield of 10.0%. The timing of the original acquisition by Hansteen has proved to be an inflection point for the performance of the Fund since which time, occupancy, rents and values have all increased materially. The latest acquisition increases Hansteen's share of the AIF portfolio to £336.0 million and increases the UK's share of Hansteen's attributable portfolio from 28% to 36%.

The improving investment markets are reflected in the values of our properties increasing strongly during the period.  Valuations on our attributable portfolio have risen by 7.8% from December 2014 with the growth across all three of our core regions.  

Results

Under IFRS, Hansteen's pre-tax profit increased by 55.5% to £103.7 million for the period (H1 2014: £66.7 million. This is a record result for Hansteen and shows the strong performance of the business in the first 6 months of the year.

In addition to Normalised Total Profit (NTP), the IFRS pre-tax profit includes movements in fair value of investment properties and financial derivatives. The property valuation improvement was £77.9 million for the wholly owned portfolio and £9.7 million for the share of associates.  Also reflected in the IFRS pre-tax profit is the charge of £8.7 million related to the potential LTIP award and associated National Insurance contributions.  The charge for the potential LTIP award does not impact net assets as it is credited back through equity. 

Normalised Income Profit (NIP) (recurring income less costs excluding profit from sales and properties, valuation movements and one-off items) decreased by £2.3 million to £22.8 million (H1 2014: £25.1 million).  There are two main reasons for the fall in the number between H1 2014 and this year.  Firstly, 2014's number included £4.0 million of finance income that related to the unwinding of a discount on the HBI Netherlands loan.  This portfolio has shown further material value accretion this half year but, because we now own the portfolio rather than the debt, that value accretion is all shown as part of our revaluation gain rather than as part of our NIP or NTP. Secondly, the significant fall in the value of the Euro has resulted in a reduction in the NIP of £2.4m. 

Despite the adverse movement in the Euro, our rental income during H1 2015 was £40.2 million which compares favourably to the equivalent number in H1 2014 of £37.3 million.

NTP (NIP plus profits or losses from property sales and realised profits from one-off items) is £30.1 million (H1 2014: £35.0 million).   The 2014 results included a £3.4 million gain when the HBI Netherlands loan was satisfied in exchange for properties on which it was secured and a £3.5 million insurance receipt in Germany. 

The table below shows how these profit measures were calculated:

Diluted EPRA earnings per share were 0.4p (H1 2014: 3.2p). This includes an £8.7 million charge and share dilution relating to the LTIP, and a negative currency effect of £7.0 million.

The improvement in IFRS net assets of £17.0 million from 31 December 2014 can be summarised as follows:

The Group's EPRA net asset value (NAV) was 103p per share (31 December 2014: 102p). This understates the underlying performance of the Group and reflects a number of one off factors that are unlikely to be repeated in the second half. During the period there was a 6p special dividend in May 2015, adverse effects of foreign currency net of hedging (3p), the impact of the bond becoming convertible for the first time (3p), the LTIP (1p) and other items (2p). These items offset the increase in EPRA NAV of 16p (16%) as a result of the NTP net of tax (4p) and property revaluation (12p).

The improvement in the EPRA NAV from 31 December 2014 can be summarised as follows:

http://www.rns-pdf.londonstockexchange.com/rns/2579X_1-2015-8-27.pdf 

Dividend

The Board has increased the interim dividend to be paid on 20 November 2015 by 5.1% to 2.1p per share (November 2014: 2.0p per share) reflecting the intention of the Board to maintain its prudently progressive dividend policy. 1.5p of the dividend payment will be a PID. The associated record date is 23 October 2015 and the ex-dividend date is 22 October 2015.

Property Portfolio

The Total portfolio that is owned or co-owned was valued as at 30 June 2015 at £1.5 billion, with a rent roll of £116.8 million per annum, and a vacancy of 14.7%. It comprised 3.9 million sq m with a yield of 8.0% and a reversionary yield of 10.0% generated from 507 estates with 5,250 tenants in five different countries.

The value of the Total portfolio increased by £101.5 million or 7.3% on a like-for-like basis from 31 December 2014, after allowing for purchases, sales and currency movements. £87.6 million of this gain attributable to Hansteen is derived from our wholly owned properties together with our share in AIF and Saltley Business Park. All three of the core regions in which Hansteen operates showed property valuation increases with the Continental European portfolio and Germany in particular performing strongly. The German portfolio increased by €76.8 million or 9.6% and the UK portfolio increased by £5.7 million or 4.6%. The Benelux portfolio value increased by €21.8 million or 7.0%, with €19.0 million of the increase relating to the portfolio we acquired last year in The Netherlands and a €2.8 million increase in the value of our two French properties.

From December 2014, AIF property values increased by £21.6 million or 5.2%. Hansteen's share of this increase is £8.8 million. The value of Saltley Business Park, owned in joint venture with Brockton Capital, increased by £1.9 million and Hansteen's share of this increase is £0.9 million. The wholly owned UK portfolio increased by £5.7 million or 4.6%.  The valuations reflect our experience of the investment market in the three regions in which we operate with the investment demand for high yielding light industrial spreading from the UK to Germany and The Netherlands.

Today we announced the acquisition of a further 35.7% stake in AIF for £103.7 million increasing Hansteen's ownership of the Fund to 76.5%. The price is a discount of 5% to the 30 June 2015 NAV reflecting Hansteen's £6.0 million performance fee on those units. The 30 June 2015 property valuation reflects a yield of 8.3%. We are delighted that we have been able to complete the acquisition of such a significant amount of AIF units and this purchase materially increases our exposure to the very strong UK multi-let industrial market.

Since the beginning of the year, 18 sales totalling almost 400,000 sq m have completed, for a combined consideration of £213.6 million generating profits to Hansteen of £6.2 million. In Germany and The Netherlands, a further €45.6 million of sales have been notarised with completion due in the second half of the year.  These notarised sales generate €2.9 million profit over the 31 December 2014 value although the 30 June 2015 valuations reflect the committed sales values.  The biggest single sale during the first half as referred to above was the sale of HPUT2 for £192.1 million to a fund advised by Brockton Capital LLP in a partnership with Dunedin Property.  At the time of sale HPUT2 had a passing rent of £14.3 million and a vacancy rate of 11.0%.  The sale created an IRR to the fund investors in excess of 27% with Hansteen's return much higher due to the Asset Management fees in addition to the investment return. 

The corollary of the strong investment market is that buying value particularly in scale is increasingly challenging. In the first half of the year we have managed to acquire a portfolio of 13 light industrial properties in Germany for a total of €21.7 million including costs.  The properties produce a combined passing rent of €2.8 million per annum from 66 tenants.  The portfolio is 18.0% vacant and if fully let should produce a rent in excess of €3.5 million per annum.  The bulk of the properties are in North Rhine-Westphalia with two in greater Frankfurt and one in Hannover.

On a like-for-like basis, after allowing for sales, purchases and currency movements, annual rental income for the Group has remained flat from December 2014. The UK showed an improvement of approximately 2.5% as our asset management team continued to take advantage of the particularly strong occupational market in the UK. Both Germany and Benelux showed like-for-like rental decreases of 2.5% due to some significant tenants vacating their units at the end of their leases. The regional teams have secured deals to refill a significant proportion of this space and the remaining space should be re-lettable at or above the previous passing rents. Like-for-like occupancy (measured by taking the vacant area at the year-end plus purchased vacancy during the period and comparing it with vacancies at the end of the period) has increased by 34,862 sq m from December 2014 with the UK showing gains and Germany and the Benelux showing marginal decreases.

Our asset management teams were very successful in the first half of the year with 825 new leases and lease renewals completed, securing £18.2 million per annum of rental income at an average of £22,100 per letting.

Hansteen Property Portfolio: Summary at 30 June 2015     

* Figures include 100% of AIF's portfolio and 100% of Saltley. Hansteen has an investment of 40.8% in AIF and a 50% investment in Saltley at 30 June 2015.

Finance and Hedging

Finance

At 30 June 2015, net debt was £391.9 million compared to £416.3 million at 31 December 2014. Net debt to property value was 36.1% (31 December 2014: 41.1%) and net debt to shareholders' equity was 51.4% (31 December 2014: 58.8%). Borrowings decreased to £493.9 million at 30 June 2015 from £526.5 million at 31 December 2014.

£199.5 million of borrowings were swapped at an average rate of 0.9%, with a further £57.0 million capped at an average rate of 1.9% and the €100 million convertible loan stock is fixed at 4%.

All of the loans continue to have significant headroom on their loan-to-value and interest cover covenants. The weighted average time to maturity of borrowings at 30 June 2015 was 3.2 years and the Group's all-in cost of borrowing at 30 June 2015 was 3.7% (31 December 2014: 3.9%).

In July 2015, Hansteen put in place a £65.0 million, three-year corporate Revolving Credit Facility with RBS in order to move its UK debt on to an unsecured basis.  The Lloyds debt which had been due to expire in December 2015 was repaid as were two smaller facilities with RBS.  The £26.7 million repayment was financed by way of a £24.5 million drawdown from the corporate facility and existing cash resources. This new facility provides the Group with a potential £40.5 million of available, undrawn funds.

As at 30 June 2015, Hansteen had £102.3 million of cash, £73.0 million of which has been used to part-fund the purchase of the AIF units along with a £31.0 million draw down from the new Revolving Credit Facility. Taking account of impending financial commitments and working capital, we have residual investable cash of approximately £5 million.

The performance of Hansteen's share price has resulted in the conditions that would allow holders to convert the Convertible bond issued in July 2013 being met earlier this year. As a result, the dilutive impact of the bonds is included in the EPRA NAV per share and diluted EPRA earnings per share measures.  This increases the number of shares used in these calculations reducing the EPRA NAV per share in the period by 3p. As yet, no bondholders have opted to convert and the norm in these situations seems to be that they are unlikely to do so until closer to the end of the convertible period (July 2018).

Currency

The Group's net assets at 30 June 2015 were £693.4 million, of which 46.9% (£325.1 million) were located in the UK and denominated in Sterling. The remaining 53.1% (£368.3 million/€520.0 million) were located in Germany, the Netherlands, Belgium and France and denominated in euro.

The Group has two €100.0 million currency options at an exchange rate of €1.3/£1. These hedges are held to mitigate the risk of a significant fall in the Sterling value of the European portfolio and the resulting fall in the NAV caused by a weakening Euro.

The Group also has four options hedging a total of €98.5 million net Euro income. These options expire at six-monthly intervals between 31 December 2015 and 30 June 2017. The exchange rate in the options range from €1.3/£1 to €1.6/£1.

Outlook

Over the last 12 months we have successfully crystallised a substantial part of the value we have created over the last few years by way of £438.5 million of sales.  A significant element of this value is delivered to shareholders through a growing dividend further enhanced this year by the special dividend, paid in May this year.    Over the same period we have also managed to acquire £146.9 million of new stock with high yields and low occupancy. As announced today we have materially increased our ownership of AIF significantly growing our exposure to the UK light industrial sector at a time when both the occupational and investment market are improving.

The outlook for the business continues to be positive.  We have a high yielding diverse portfolio of properties most of which were purchased at a relative low point in the cycle and has shown material growth in occupancy, the rent roll and value since.  We believe that there is further such growth still to come, accelerated by the proven ability of our Pan-European network of offices and people to maximise occupancy and value.  Whilst the recent issues affecting the Eurozone and the Euro are unhelpful, our view is that once the immediate volatility calms down the longer term effect is likely to reinforce the 'lower for longer' financial environment.  This should continue to fuel the current 'search for yield' by investors leading to further increases in liquidity and value in our sector. 

Hansteen Holdings Board

As foreshadowed in the 2014 Report and Accounts, Richard Mully retired from the Board at the AGM in June 2015.   Richard has been a knowledgeable and committed Board member over the last nine years and we thank him for his valuable contribution.

James Hambro

Chairman

26 August 2015

Responsibility statement

We confirm to the best of our knowledge:

(a)   The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b)   The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)   The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

On behalf of the Board

Morgan Jones                                                                       Ian Watson

Joint Chief Executive                                                           Joint Chief Executive

26 August 2015

Copies of this announcement are available on the Company's website at www.hansteen.co.uk and can be requested from the Company's registered office at 1st Floor Pegasus House, 37-43 Sackville Street, London, W1S 3DL.

Consolidated income statement

for the six months ended 30 June 2015

Consolidated statement of comprehensive income

for the six months ended 30 June 2015

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

Consolidated balance sheet

As at 30 June 2015

Consolidated statement of changes in equity

for the six months ended 30 June 2015

Consolidated cash flow statement

for the six months ended 30 June 2015

Notes to the condensed set of financial statements for the six months ended 30 June 2015

1.     General information

Hansteen Holdings PLC is a company which is incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 1st Floor, Pegasus House, 37-43 Sackville Street, London, W1S 3DL.

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

The financial information contained in this interim report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the year ended 31 December 2014 was derived from the statutory accounts for the year ended 31 December 2014, a copy of which has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis of matter and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2.     Basis of preparation

The annual financial statements of Hansteen Holdings PLC are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

The interim report was approved by the Board on 26 August 2015.

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

Balance sheet: £1 = €1.4118 (31 December 2014: £1 = €1.2841)

Income statement: £1 = €1.3655 (30 June 2014: £1 = €1.2179)

3.     Principal risks and uncertainties

Risk management is an important part of the Group's system of internal controls. Senior management and the Board regularly consider the significant risks which it believes are facing the Group, identify appropriate controls and, if necessary, instigate action to improve those controls. There will always be some risk when undertaking property investments but the control process is aimed at mitigating and minimising these risks where possible. The key risks identified by the Board for the remaining six months of the year, the steps taken to mitigate them and additional commentary is as follows:

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

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

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

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

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

4.     Going concern

The Group's principal risks and uncertainties are detailed above. The Directors believe that the Group is well placed to manage its business risks successfully despite the potential impact of the current uncertain economic outlook on the Group's operating cash flows and the possibility of tenancy failures and increased vacancies. After consideration of the Group's forecast cash flows and covenant compliance, including evaluation of the impact of potential reductions in property valuations, rental income and increases in interest rates, the Directors have a reasonable expectation that the Group will continue to have adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing these condensed financial statements.

Information on the Group's performance and its risk management is included in the Interim Statement, including sections on the finance, hedging and outlook of the Group. The Group's debt maturity profile and principal covenants are disclosed in note 15 to these condensed financial statements.

5.     Related party transactions

Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed. There have been no other material transactions with related parties in the first six months of 2015 and there have been no material changes in the related party transactions described in the Annual Report and Accounts for the year ended 31 December 2014.

6.     Operating segments

The following is an analysis of the Group's revenue and results by reportable segment:

Administrative expenses and net finance costs are managed as central costs and are not allocated to segments.

The following is an analysis of the Group's assets by reportable segment:

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

7.     Other operating income

Other operating income principally relates to income from an option to purchase a property which was not utilised by the purchaser.

8.     Net finance costs

9.     Tax on profit on ordinary activities

10.   Dividends

As a REIT, the Company is required to pay Property Income Distributions ('PIDs') equal to at least 90% of the Group's exempted net income after deduction of withholding tax at the basic rate (currently 20%). £10.9 million of the cash dividend paid in the period ended 30 June 2015 is attributable to PIDs (2014: £2.7 million).

11.   Normalised Income Profit and Normalised Total Profit

Normalised Income Profit and Normalised Total Profit are adjusted measures intended to show the underlying earnings of the Group before fair value movements and other non-recurring or otherwise non-cash one-off items. A reconciliation of the Normalised Income Profit and Normalised Total Profit reconciled to profit before tax prepared in accordance with IFRS is set out below.

* Administrative expenses as presented in Normalised Income Profit exclude £10.3m (2014: £8.4m) relating to the LTIP charge and expenses related to the sale of investment in associate.

12.   Earnings per share and net asset value per share

The European Public Real Estate Association ('EPRA') has issued recommended bases for the calculation of certain per share information. Diluted EPRA EPS and Diluted EPRA NAV are included in the following tables.

13.   Investment property

In accordance with IFRS 13, the Group's investment property has been assigned a valuation level in the fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). All of the Group's investment property as at 30 June 2015 is categorised as Level 3. Details of inputs used in the fair value measurement can be found in the Chairman's Interim Statement. An increase in passing rent and a decrease in discount rate would increase the valuation.

14.   Investment in associates

During the period, the Group made an additional £11.0 million investment in Ashtenne Industrial Fund Unit Trust, bringing the Group's holding to 40.8% (2014: 36.7%). The Group disposed of its 33.33% holding in Hansteen UK Industrial Property II Limited Partnership in May 2015. The Group's investment in Hansteen Saltley Unit Trust remains at 50%.

15.   Borrowings

* The July 2018 facility is an unsecured convertible bond. The bonds will, subject to the satisfaction of certain conditions, be convertible into ordinary shares of the Company. Bonds can be converted at the option of the bond holder from 15 July 2016. The bonds may be converted before this date if Hansteen's share price (expressed in euro at the current exchange rate) is more than 130% of the current conversion price (expressed in euro at a fixed exchange rate) for a period of 20 consecutive dealing days within the 30 dealing days ending on the day before the last dealing day of any calendar quarter.

Bond holders can only exercise their conversion rights in the quarter following the quarter in which the ratio was above 130% for the required period. As at 30 June 2015, the conditions were met thereby permitting Bond holders to convert at their option in the quarter to 30 September 2015.  No Bond holders have exercised these conversion rights as at the date of signing these condensed financial statements.

Under the terms of the bonds, the Company will have the right to elect to settle any conversion entirely in ordinary shares of the Company, cash or a combination of shares and cash. If not previously converted, redeemed or purchased and cancelled, the bonds will be redeemed at par in July 2018.

** On the €84 million facility expiring in April 2017 the loan to value covenant reduces by 2% per annum.

Security for secured borrowings at 30 June 2015 is provided by charges on property with an aggregate carrying value of £923 million (31 December 2014: £929 million).

Reconciliation of movement in net debt in the period

16.   Share capital

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

During the period, the Company acquired some of its own shares in order to settle obligations under the Performance Share Plan arrangement. A summary is presented below:

17.   Net cash inflow from operating activities

18.   Financial instruments fair value disclosures

The table below sets out the categorisation of the financial instruments held by the Group at 30 June 2015. Where the financial instruments are held at fair value the valuation level indicates the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Valuations categorised as level 2 are obtained from third parties. If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

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

INDEPENDENT REVIEW REPORT TO HANSTEEN HOLDINGS PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' responsibilities

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

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Reading, United Kingdom

26 August 2015