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H1 results confirm strong operational demand and continued capital growth across Hansteen's portfolio. NAV +2% to 104.4p was broadly in line with our forecast.
Hansteen
Demand for industrial real estate remains strong supported by continued cyclical expansion and structural tailwind. Hansteen's urban assets further benefit from severely constrained supply with the focus for land use concentrated on residential and development unviable at current levels of market rent.
FY18 results were ahead of our forecasts with Hansteen delivering its seventh consecutive year of double-digit total returns. A 35p special dividend and ~6% LTIP dilution reduced NAV -21% to 102.7p, 3% ahead of forecast.
The outlook for industrial real estate remains attractive, but valuation premiums largely reflect this and return prospects will diminish as the cycle matures. Yields are tight and a growing supply response could absorb excess demand. Superior late-cycle returns are likely to be generated by REITs with greater exposure to urban locations, Continental Europe and/or development activity. Segro is our only industrial REIT Buy.
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H1 results were strong and ahead of our expectations with NAV +4% excluding the 35p return of capital. Adjusted EPS at 3.2p was 10% ahead of our forecast and the DPS was +4% to 2.4p, in line with our forecast. Hansteen remains well placed to benefit from the strength of the industrial market; where secondary yields remain elevated to prior cycle lows and urban locations are increasingly sought after. However, the potential sale of ~70% of the portfolio further highlights an increasingly sub-scale portfolio. The shares trade at a CY18 P/NAV of 1.05x vs. the sector on 0.86x, which we believe fairly reflects the potential premium on future disposals.
Hansteen’s underlying markets are strong; with the potential for further yield compression, robust rental growth and occupancy uplift. However, management are now sellers into market strength: divestments and the proposed 35p capital return lower our NAV and EPS estimates. Together with the special dividend, we forecast 7% total returns in FY18, but see limited material upside from the group’s increasingly sub-scale portfolio. We retain a HOLD rating and change our target price to 105p ex-div from 140p. The shares trade on a CY18 P/NAV of 0.92x vs. the sector 0.84x, with a 5.1% DPS yield.
FY17 results were modestly ahead of our forecasts, with NAV +1% to 130.6p and 3% ahead of our 126.4p forecast. EPS was 2% ahead of our forecast and the DPS +3% was in line. Following the sale of the IMPT portfolio and the CPO of the Saltley Business Park cash is expected to increase significantly. As a result, Hansteen has proposed a further £145m capital return representing 35p per share. Following successive disposals Hansteen’s remaining UK portfolio is increasingly sub-scale. Although management has form in realising value the shares trade at a 9% premium to CY18 NAV and yield 4.5%.
Hansteen Holdings Plc is a UK real estate investment trust (REIT). It is focussed on UK industrial investment property.
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