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RNS
Hibernia REIT PLC  -  HBRN   

Preliminary Results

Released 07:00 23-May-2017

RNS Number : 9011F
Hibernia REIT PLC
23 May 2017
 

PRELIMINARY RESULTS

For the financial year to 31 March 2017

23 May 2017

Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces its preliminary results for the financial year to 31 March 2017.  Highlights for the financial year:

Strong financial performance, driven by developments

·     Portfolio value of €1,167m, up 9.9%[1] in the year (developments up 47.2%1) and 7.4%1 in H2

·     12-month total property return of 14.5% vs IPD Ireland Index of 11.2%

·     EPRA NAV per share of 146.3 cent, up 11.9% in the year and 8.7% in H2

·     Net rental income of €39.7m, up 56.3% excluding surrender premium in prior year (up 31.0% incl. this)

·     Profit before tax of €119.0m (March 2016: €136.3m) including revaluation surplus

·     EPRA earnings of €15.0m (March 2016: €5.1m, excluding surrender premium)

 

Development programme making excellent progress and enhanced by select acquisitions

·     Three schemes completed, delivering 191,000 sq. ft. of Grade A space and profit on cost of 50%

·     Three committed schemes at March 2017 (295,000 sq. ft. Grade A) completing over period to mid-2018

Full ownership of 1WML acquired in December 2016 with purchase of Starwood's 50% interest

·     Hanover Building added to committed schemes in May 2017: will deliver 71,000 sq. ft., of refurbished space (including 12,000 sq. ft. fitness facility) by end of 2018

·     Near and longer term pipeline of five schemes totalling 660,000 sq. ft. of office space post completion

Blocks 1, 2 & 5 Clanwilliam Court added to longer term pipeline following acquisition in July 2016

 

Income and WAULTs increased significantly through leasing activity, with more to come

·     Contracted rent roll now €48.3m, up 24% on 31 March 2016[2]

·     "In-place" office portfolio income duration and security increased

WAULT to earlier of break / expiry now 6.7 years, up 56% on 31 March 2016

50% of rent now upward only or capped / collared at next rent review (March 2016: 36%)

·     Increase in WAULTs driven by letting of completed developments which have avg. term to earlier of break / expiry of 10.7 years and avg. rents of €49psf

·     Remaining "in-place"[3] CBD offices have avg. rents of €37psf, reversionary potential of 24% and an avg. period to earlier of rent review or expiry of 3.2 years

 

Asset management initiatives

·     Building management department formed to take management of Group's multi-let buildings in-house and maximise service for tenants: as of April 2017 all multi-let offices were under direct management

·     Flexible workspace arrangement formed with Iconic Offices in Block 1, Clanwilliam Court

 

Modest leverage: flexible, undrawn facilities for further investment

·     Net debt at 31 March 2017 of €155.3m, LTV of 13.3% (March 2016: €52.9m, LTV 5.7%)

·     Cash and undrawn facilities of €288.9m: €149.5m net of committed development spend and anticipated repayment of 1WML facility

 

Growing dividend as rental income increases 

·     Final dividend of 1.45 cent per share, bringing total for year to 2.2 cent, up 46.7% (2016: 1.5 cent)

·     Expect further growth as developments are leased and reversion captured via lease events / reviews



 


Kevin Nowlan, Chief Executive Officer of Hibernia, said:

 

"We are very pleased to report strong results, outperforming the Irish property index, driven particularly by development activity and asset management in the second half.  Our leasing activity has led to a 24% increase in our contracted rent roll in the year and a 56% increase in the average unexpired term of our "in-place" office income.  We are proposing to increase the dividend by 47% and with rising portfolio income, we expect dividends to become an increasingly important component of shareholder returns in the future.

 

"In addition we have made good progress in the year in de-risking the portfolio: we have acquired full control of 1WML, we have clarity on the date of the OPW's departure from Harcourt Square, the three developments we completed this year are fully let and pre-leasing is progressing well in our committed schemes.

 

"Looking ahead, we are positive about our prospects.  Economic momentum remains strong in Ireland and we are seeing continued interest in Dublin from UK-based occupiers following the UK's decision to leave the EU: we expect that decisions on destination cities will start to be made in the second half of the year.   We have a portfolio rich in opportunity, an exciting development pipeline and a strong balance sheet for further investment where we see opportunity."

 

 

 

Contacts:
Hibernia REIT plc                                                                                         +353 1 536 9100
Kevin Nowlan, Chief Executive Officer
Tom Edwards-Moss, Chief Financial Officer

 

Murray Consultants
Doug Keatinge: +353 86 037 4163, dkeatinge@murrayconsultants.ie
Jill Farrelly: +353 87 738 6608, jfarrelly@murrayconsultants.ie


About Hibernia REIT plc
    
Hibernia REIT plc is a Dublin-focused Irish Real Estate Investment Trust ("REIT"), listed on the Irish and London Stock Exchanges, which owns and develops Irish property.  All of Hibernia's portfolio of properties is in Dublin and it specialises in city centre offices.

The results presentation will take place at 9.00am today: a conference call facility will be available to listen to the presentation live using the following details:

Ireland Toll: +353 (0)1 696 8154
Ireland Toll-Free: 1800 936 842

Participant code: 71194587#

Disclaimer
This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  The forward-looking statements speak only as at the date of this Announcement.  The Group will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority. 

Chief Executive Officer's Statement

We are pleased to report another set of strong results, driven in particular by the performance of our developments in the second half of the year.  The total property return of our portfolio in the year was 14.5%, outperforming the IPD Ireland Index which returned 11.2%, and delivering a 11.9% growth in EPRA NAV per share to 146.3 cent.          

Development programme making excellent progress and enhanced by acquisitions in the year  
We completed three schemes in the year, 1 Cumberland Place, One Dockland Central and SOBO Works, delivering 191,000 sq. ft. of refurbished Grade A office space, all of which is fully let, and an aggregate profit on cost of 50%.  As at 31 March 2017, our three committed schemes, 1WML, 1SJRQ and Two Dockland Central were progressing well: with the acquisition of Starwood's 50% interest in 1WML in December 2016, these three schemes will now deliver 295,000 sq. ft. of Grade A office space over the period to mid-2018, of which 25% was pre-let as at 31 March 2017.  In May 2017, the Board approved the refurbishment and extension of the Hanover Building, which will deliver a further 71,000 sq. ft. (including a 12,000 sq. ft. fitness facility) and which we expect to complete in late 2018.  The acquisition of Blocks 1, 2 & 5 Clanwilliam Court added to our development pipeline, which now totals 5 schemes and 660,000 sq. ft. of office space post completion.        

Rent roll and income duration increased significantly through leasing activity        
Our priority is to increase portfolio income and extend lease terms and income security through the leasing of our developments and through rent reviews and lease renewals.  Key lettings in the year included 35,000 sq. ft. in 1WML pre-let to Informatica at a rent of €2.1m per annum, 32,000 sq. ft. in Two Dockland Central pre-let to HubSpot at a rent of €1.8m per annum and a new lease agreed with the Office of Public Works ("OPW") for all 117,000 sq. ft. of Harcourt Square at an annual rent of €6.0m.  In total, new lettings and rent reviews increased contracted rents by €10.4m (€9.3m net of lease expiries and including new acquisitions), bringing contracted rents as at 31 March 2017 to €48.3m, up 24% on 31 March 2016.          

The weighted average periods to break and lease expiry for the new leases agreed in the year were 10 and 17 years, respectively, and these increased the "in-place" office WAULT to the earlier of break or expiry to 6.7 years, up 56%.  In addition, 50% of the "in-place" office rents of €38.0m are now upward only or capped / collared at the next rent review (2016: 36%), limiting the Group's near term rental exposure in the event of a downturn in the rental market.           

New asset management initiatives           
We established an internal building management department in July 2016 to take direct control of the management of our multi-let commercial properties in order to develop closer relationships with our tenants and to provide a better level of service for them.  As at 30 April 2017, all thirteen multi-let office buildings (totalling 644,000 sq. ft.) had transferred to direct management and new multi-let buildings will be added as they are completed or acquired: the department is expected to be cost neutral for Hibernia now it is fully operational.   

In January 2017 we formed a five year flexible workspace arrangement with Iconic Offices ("Iconic"), a leading Dublin-based flexible workspace provider (and existing tenant of Hibernia), to establish a serviced office and co-working business in 21,000 sq. ft. of Block 1 Clanwilliam Court (see further details below).  The arrangement gives Hibernia the opportunity to learn more about flexible workspace and serviced offices, which are increasingly significant elements of the office occupational market.  In addition, it gives Hibernia contact with small, rapidly growing enterprises which may have larger space requirements in future. 

Modest leverage and available funding for further investment          
We are moving towards our through-cycle leverage target of 20-30% loan to value: in the financial year we invested €52.5m in development and refurbishment expenditure and €85.4m in acquisitions: as at 31 March 2017 net debt was €155.3m and our loan to value ratio was 13.3% (March 2016: 5.7%).  We continue to have substantial available funding: cash and undrawn facilities as at 31 March 2017 were €288.9m, €149.5m net of committed development spend and expected repayment of the 1WML facility.           

Growing dividend as rental income increases   
EPRA earnings grew 192.5% to €15.0m in the year (excluding last year's one-off surrender premium) as a result of our letting activity.  This has enabled the Board to propose a final dividend of 1.45 cent per share, bringing the dividend for the year to 2.2 cent, up 46.7% on prior year.  We expect this to grow further as our developments are leased up and as we capture the reversionary potential within the "in-place" office portfolio.          


Positive outlook      

The Irish economy continues to perform well and vacancy rates in Dublin offices remain low.  While there are new buildings under construction, the limited availability of speculative development funding means significant pre-lets are often a requirement before developments can proceed.  We are seeing continued interest in Dublin from UK-based occupiers following the UK's decision to leave the EU, and we expect that decisions on destination cities will start to be made in the second half of the year.

We remain positive on our prospects: we have a portfolio rich in opportunity and let off low rents, an exciting development pipeline with substantial completions in the next 12 months, and a strong balance sheet for further investment where we see opportunity.

 

Kevin Nowlan, Chief Executive Officer



 

Market Review        
General economy    
Ireland's GDP growth in 2016 was 5.2% (source: CSO), which was ahead of expectations and the strongest growth in the Eurozone (source: European Commission).  The Central Bank of Ireland ("CBI") is expecting GDP growth to remain strong in 2017 and 2018 at 3.5% and 3.2%, respectively.  While the CBI's forecasts are more conservative than some commentators', they still compare favourably to GDP growth forecasts for the Euro area of 1.6% in 2017 and 2018 (source: the OECD). 

The unemployment rate in Ireland has continued to fall and reached 6.2% in April 2017 (April 2016: 8.4%).  Dublin accounted for about one third of Irish job creation in 2016 and saw a year-on-year increase in the number of jobs of 3.2% (source: CSO), with office-based employment in Dublin growing 5.5% (source: Savills).  With services, manufacturing and construction PMIs recovering following a softer period in the aftermath of the UK referendum in June 2016, the favourable labour market trends are expected to continue.

As the economy grows and tax revenues increase, so the fiscal position is improving: in 2017 the budget deficit is expected to reduce to 0.3% of GDP and the debt/GDP ratio is expected to fall to 72% (94% at start of 2016) (source: Davy).  Political pressure for increased Government spending and/or tax cuts is growing so the deficit statistics may widen in coming years but accompanied by a likely stimulus to domestic demand.

As a relatively small and open economy, Ireland is highly dependent on international trade and foreign direct investment ("FDI").  Events that could negatively affect these, such as the UK's departure from the EU and possible US tax and trade policy changes, remain among the principal risks to the economy.  To date however, no such impacts have been felt: 5,500 IDA sponsored jobs were created in Dublin & the Mid-East region in 2016 vs the five-year average of 4,800 (source: IDA) and the flow of FDI into Ireland has remained strong in early 2017.  In addition, the UK's departure from the EU may create opportunities for Dublin even if the eventual impact for the wider Irish economy may be negative given strong trade links with the UK.

Irish property investment market  
As the Irish property market has moved out of its recovery phase returns have normalised: in the 12 months to 31 March 2017 the MSCI Ireland Property Index delivered a total return of 11.2% (vs 23.5% in 12 months to 31 March 2016), of which 6.2% derived from capital growth (March 2016: 17.7%) and 4.7% from income (March 2016: 5.0%). The industrial sector was the top performer over this period with a total return of 16.7%, followed by retail at 11.8% and offices at 10.8%.  Despite the expected moderation of returns, in 2016 Ireland was the third highest performer in the MSCI Global Index, which delivered 7.4%.  The majority of office capital growth (in the MSCI Ireland Index) has continued to come from ERV growth rather than yield compression. Views among the Dublin agents on the level of prime office yields vary but most are in a range of 4.25%-4.75%.

Investment spend in 2016 totalled €4.5bn with offices comprising 31% and retail 50%: these statistics are somewhat skewed by two particularly large shopping centre transactions in the year (source: CBRE).  The last three years have seen exceptional investment volumes, averaging €4.2bn per annum as a result of deleveraging, but total volumes are expected to return to more "normal" levels of c.€2bn in 2017 (source: JLL): in Q1 2017 investment totalled €0.5bn (source: CBRE).  Given the increasingly institutional nature of ownership of prime properties, and the reduction in investment volumes, Grade A offices are becoming harder to buy and accounted for a smaller share of the traded stock in 2016 (source: Savills).  Consequently we may see more forward funding transactions as institutional investors seek to acquire prime office property in a market where development funding remains limited. 

The tax changes for property funds and S110 companies announced in late 2016 which do not apply to Irish REITs and were introduced at the start of 2017 have not had a discernible impact on our market (i.e. prime Dublin CBD offices) to date: the dominant buyer of this asset type for the past 18 months has been European pension funds who are generally exempt from the changes.

Office occupational market            
With office supply still limited and substantial tenant demand, market conditions in Dublin continue to favour landlords: long leases (15 years+) and limited tenant incentives remain prevalent, especially away from large pre-leasing deals.  Dublin office take-up in 2016 was 2.6m sq. ft., substantially above the 10-year average of 2.0m sq. ft. (source: CBRE).  In Q1 2017, a typically quiet quarter, 0.5m sq. ft. of lettings were agreed and 0.5m sq. ft. was listed as reserved, which bodes well for take-up in Q2 2017 (source: CBRE).  We expect take-up in 2017 to be weighted towards the second half of the year as many of the larger requirements currently active are unlikely to translate into transactions until later in the year.  Supporting this view, the volume of active demand for office accommodation at the end of Q1 2017 stood at more than 3.0m sq. ft. up from 2.8m sq. ft. at the end of Q4 2016 (source: CBRE). 

The overall Dublin vacancy rate was 7.0% at the end of Q1 2017 and the Grade A vacancy rate in Dublin 2/4 (where 65% of Hibernia's portfolio is located) was 3.1% (source: CBRE).  These vacancy rates are marginally higher than at Q4 2016 as some new supply has started to complete and as offices vacated by some occupiers moving to new premises are coming back into vacant stock.  Rents across the Dublin office market rose in the year with prime headline rents at the end of Q1 2017 of €62.50 per sq. ft., up from €57.50 per sq. ft. at the end of Q1 2016 (source: CBRE).  Given the scarcity of speculative development funding, large single occupiers looking for pre-lets may be able to secure a discount on these terms where a letting enables a developer to unlock development funding.

Notwithstanding the increase in prime rents, the CBD (where all of Hibernia's office portfolio is located) remains the area of choice for occupiers, accounting for 77% of Dublin office take-up in 2016, slightly above the six-year average of 74% of take-up.  In line with sectoral splits over the past three years, tenants in the technology, media and telecoms sector accounted for 25% of take-up in 2016, with professional services and financial services accounting for 15% and 14%, respectively (source: CBRE).

Office development pipeline         
2016 marked the delivery of the first newly constructed office buildings in the Dublin market in over five years: in total, 1.1m sq. ft. of new office space was delivered, 94% of which is now let.  We expect around 2.1m sq. ft. to be delivered in 2017 of which c. 50% is pre-let or reserved.  Further ahead, we expect around 1.5m sq. ft. will be delivered in 2018, and 1.8m sq. ft. in both 2019 and 2020, with a total of 10.8m sq. ft. gross of new space delivered between 2015 and 2020.  10.8m sq. ft. of gross additions to the stock represents c.9.8m sq. ft. of net new space (as a result of demolition to facilitate new development) and would represent an increase in the total stock figure of c.24% vs an increase in stock of 98% from 1993 - 2002 and 51% in 2003 - 2011 (source: Goodbody). 

Finance for speculative development remains limited, which is resulting in the owners of key development sites in the CBD seeking large pre-lets before commencing development.  Key pre-lets in 2016 included Grant Thornton (107,000 sq. ft.) and Amazon (170,000 sq. ft.), both achieving rents in excess of €50.00psf and term to break in excess of 12 years.

Residential sector  
The lack of available housing in Dublin remains one of the biggest challenges facing the Irish property industry in the short to medium term.  Data from the 2016 Census showed that the population in Ireland grew by 3.8%, which was three times faster than any other EU state in the last five years. Dublin's population grew by 5.8% in the same period (74,000 people) (source: CBRE).  The numbers in rental accommodation rose by 4.7% over the same period (source: CSO) and the homeownership rate fell from 69.7% to 67.6% and was even lower in urban areas, at 59.2%.  Regardless of whether the Census or Department of Housing statistics are used, completions and commencements fall well short of the Government's target to deliver 25,000 homes per annum in the period to 2021 (Source: Rebuilding Ireland/Government of Ireland) and the ESRI's projections that demand is likely to increase at a steady rate before reaching just over 30,000 units per annum by 2024.

Despite the undersupply of stock, residential transaction and mortgage approval volumes showed strong growth early in the year (source: BPFI) resulting in house prices rising by 8.1% in Dublin in the year to February 2017 (source: CSO) and Davy are forecasting national house price inflation of 10% through 2017. There is continued upward pressure on rents and Dublin rents were up 13.9% in the 12 months to March 2017 (source: DAFT) although the ability to capture reversion on existing (let) residential stock is limited by the introduction of Rent Pressure Zones ("RPZs") (including Dublin) which limit rent increases to a maximum of 4% per annum for the next three years.

 



 

Business Review

Acquisitions and disposals           
The Group made two acquisitions in the year totalling €85.4m, both of which have development angles:

·     In July 2016 we acquired Blocks 1, 2 & 5 Clanwilliam Court, Dublin 2, for €52.4m (incl. costs) (€544 per sq. ft.).  These 1970s office buildings total 93,700 sq. ft. and have 220 underground car parking spaces.  The acquisition, together with Marine House in March 2016, gave the Group ownership of four contiguous office blocks in a prominent, city centre location with potential for substantial redevelopment in the longer term

·     In December 2016 we acquired full control of the development at 1 Windmill Lane ("1WML") by purchasing Starwood's 50% interest for €28.3m (incl. costs) plus €4.7m in debt through the assumption of Starwood's 50% share of the Windmill debt facility

The sale of non-core assets from the Dorville portfolio (acquired in 2014) was virtually completed in the year (only two assets remained to be sold at year end), with 13 assets disposed of, generating gross sales proceeds of €4.2m and a net profit of €0.1m after costs.  Overall, the sale of the non-core assets has delivered a net profit of €5.0m on sales of €34.4m.

 

Portfolio overview

As at 31 March 2017 the property portfolio consisted of 28 investment properties valued at €1,167m, which can be categorised as follows:

 


Value as at Mar 17 (all assets)

% of portfolio

% uplift since Mar 16
excl. new acquisitions (1)

% uplift since Mar 16
incl. new acquisitions (1)

% uplift since acquisition (1)

Equivalent Yield on value (%)

Passing rent
(€m)

1. Dublin CBD Offices








Traditional Core

€439m

38%

6.9%

6.8%

29.6%

5.3%(5)

€20.3m

IFSC

€254m (2)

22%

5.7%

5.7%

36.7%

5.1%

€9.9m

South Docks

€177m (3)

15%

3.1%

3.1%

31.7%

5.3%

€6.1m

Total Dublin CBD Offices

€870m

75%

5.7%

5.7%

32.0%

5.3%(5)

€36.3m









2. Dublin CBD Office Development (4)

€168m

14%

45.8%

47.2%

86.7%

-

-

3. Dublin Residential

€116m

10%

2.6%

2.6%

23.7%

4.6%

€5.2m

4. Industrial

€13m

1%

6.1%

6.1%

26.0%

6.8%

€0.7m

Total Investment Properties

€1,167m

100%

8.5%

9.9%

36.8%

5.2%(5) (6)

€42.2m

1.     Includes capex in acquisition costs

2.     Includes full value of 2DC in IFSC (even though under refurbishment)

3.     Excludes the value of space occupied by Hibernia in South Dock House. Includes full value of The Hanover Building

4.     1 Cumberland Place now in Traditional Core but value of site at the front is in Dublin CBD Office Development

5.     Harcourt Square yield is the yield on existing building (91% of property value)

6.     Excludes all CBD office developments but includes Hanover and 2DC in CBD Dublin Offices

 

 

 



 

The office element of our portfolio had the following statistics at 31 March 2017:


Contracted rent

(€m/€psf)

ERV

(€m/€psf)

WAULT to review (1)

(years)

WAULT to break/expiry

(years)

% of rent upwards only (2)

% of next rent review cap & collar

% of rent MTM (3) at next lease event

Acquired "in-place" office portfolio

€27.8m (€37psf)

€34.6m (€47psf)

3.2yrs

5.2yrs

38%

0%

62%

Completed office developments (4)

€10.2m (€49psf)

€10.4m (€50psf)

4.4yrs

10.7yrs

0%

83%

17%

Whole "in-place" office portfolio

€38.0m (€40psf)

€45.0m (€48psf) (5)

3.5yrs

6.7yrs

28%

22%

50%

Pre-let committed schemes (6)

€4.1m (€54psf)

€4.1m (€54psf)

5.3yrs

11.6yrs

0%

8%

92%

Whole office portfolio

€42.1m (€41psf)

€49.1m (€48psf)

3.7yrs

7.2yrs

25%

21%

54%

1.     To earlier of review or expiry

2.     Incl. small amount (<1%) of CPI linked

3.     Mark to Market ("MTM")

4.     1 Cumberland Place, SOBO, 1DC

5.     CBRE assume c.€18.2m CAPEX to achieve this ERV

6.     2DC, 1WML

Our priority is to increase portfolio income and extend unexpired lease terms and income security.  We are seeking to achieve this in two ways:

·     Completion and letting of new office developments: in the financial year we completed three schemes, totalling 191,000 sq. ft. of office space, all of which are fully occupied on leases with average remaining terms of 20 years and first break options at 10.7 years, adding €10.2m to the "in-place" office portfolio and significantly increasing the WAULTs to break and expiry.  The completion and letting of our four committed development schemes over the next 18 months (see further details below) should further improve portfolio income and unexpired lease terms   

·     Rent reviews & lease renewals: the remaining "in-place" portfolio (i.e. the acquired "in-place" office portfolio) has an average period to the earlier of rent review or expiry of 3.2 years and reversionary potential of 24% (at valuers' ERVs).  As we progress through the rent reviews and lease renewals we expect to enhance portfolio income and duration further

The "in-place" office portfolio occupancy level at 31 March 2017 was 97% (31 March 2016: 94%).  The increase in occupancy rate is largely attributable to small lettings in the Chancery Building and Hanover Street East as well Two Dockland Central (formerly Guild House) being moved to developments.

 

Developments and refurbishments

The Group completed three schemes totalling 191,000 sq. ft. of refurbished Grade A office space in the year.  As at 31 March 2017 the Group had three committed schemes under way, which will deliver c.295,000 sq. ft. of new and refurbished Grade A office space by mid-2018, of which 25% was pre-let. In May 2017, the Board approved the redevelopment and extension of Hanover Building, which adds a further 71,000 sq. ft. (incl. 12,000 sq. ft. fitness centre) to committed schemes and is expected to complete by the end of 2018 at an estimated total cost of €22m. As a result, the proportion of committed schemes that is now pre-let is 21% of office space.

 

The Group's pipeline of potential future developments comprises five schemes (assuming Clanwilliam Court and Marine House are treated as one scheme) which, if undertaken, would deliver over 660,000 sq. ft. of high quality office space when completed.

 

Schemes completed           
Three schemes completed in the year, delivering 191,000 sq. ft. of Grade A space, all of which are fully let:

·     One Dockland Central: the refurbishment was successfully completed in May 2016, delivering a profit on cost of 40%.  Approximately half of the c. 58,000 sq. ft. refurbished was pre-let to HubSpot in November 2015 and the remaining space was let to ComReg in July 2016

·     SOBO Works: converted to c. 10,000 sq. ft. of office accommodation and c. 2,000 sq. ft. of retail with the works completing in April 2016 and delivering a profit on cost in excess of 50%.  All the space was pre-let to Iconic Offices, a flexible workspace provider, at a rent of €0.4m per annum

·     1 Cumberland Place: completed in September 2016, generating a profit on cost in excess of 50%.  96,000 sq. ft. was pre-let to Twitter, who took occupation at completion, and the remaining 33,000 sq. ft. was let to Travelport (MTT) in September 2016 on a lease which commenced in November 2016

 

Committed development schemes

At 31 March 2017, the Group had committed schemes under way at three properties which will deliver c. 295,000 sq. ft. of new and refurbished Grade A office space over the period to mid-2018.  25% of this office space was pre-let as at 31 March 2017. In May 2017, the Board approved the redevelopment of the Hanover Building, which adds a further 71,000 sq. ft. (including a 12,000 sq. ft. fitness centre) to committed schemes:

·     Two Dockland Central: the refurbishment is on schedule to complete in late 2017.  All tenants vacated following expiry of their leases in March 2017 (with the exception of BNY Mellon, who hold a long-term lease and remain in occupation) and the contractors are on site.  The building is now c. 75 % let

·     1 Windmill Lane ("1WML"): completion is scheduled for July 2017, ahead of the original completion target of late 2017.  So far 29% of the building has been pre-let to Informatica and discussions continue with various potential tenants

·     1 Sir John Rogerson's Quay ("1SJRQ"): construction work continues and the scheme remains on track to complete in mid-2018.  Preliminary discussions with potential tenants have commenced

·     Hanover Building: the office tenant (BNY Mellon) left the building at the end of March 2017 and the redevelopment and extension of the building is now approved and is expected to complete in late 2018

 

At 31 March 2017 CBRE, the independent valuer, had an average estimated rental value for the unlet office space (221,000 sq. ft.) in our three committed schemes at that point (1WML, 1SJRQ, Two Dockland Central) of €52.17psf and were assuming an average yield of 5.30% upon completion: based on these assumptions they expect a further c. €20m of development profit (ex. finance costs) to be realised through the completion and letting of the unlet space in these schemes. A 25 basis point movement in yields across the unlet space would make c. €10m of difference to the development profits, as would a €2.50psf change in estimated rental value.

 

 

 

 

 

 

 

 

 

 

 

 

Please see further details on the development schemes below:

 


Sector

Total NIA post completion (sq. ft.)

Full purchase price

Capex/Est. capex

Est. total cost (incl. land) €psf

ERV (1)

Office ERV psf (1)

Expected PC Date

One Dockland Central

Office

74k (2)

€46m

€10m (3)

€736psf (4)

€4.0m

€50.40psf

Completed May 16

SOBO Works

Office

11k

€2m

€1.3m

€275psf

€0.4m

€37.10psf

Completed Apr 16

1 Cumberland Place

Office

122k (5)

€51m

€31m

€668psf (6)

€6.9m

€51.05psf (7)

Completed in Sept 2016

Total completed


207k

€99m

€42.3m (8)


€11.3m



Two Dockland Central

Office

73k (9) office

€46m

€11m (10)

€765psf (4)

€4.1m

€52.10psf

Q3 2017

 

1WML

Office

122k office

7k retail

6k reception

14 resi. units

€24m (11)

€53m (11)

€557psf (7)

€7.3m (12)

€51.95psf (7)

mid 2017

 

Hanover Building

Office

59k office

12k gym

 

€21m

€22m (13)

€680psf (7)

€3.0m (13)

€47.40psf (13)

late 2018

 

1SJRQ

Office

115k office

5k retail

1k amenity

€18m

€58m

€639psf (7)

€6.4m

€53.25psf

mid 2018

 

Total committed


369k office

24k retail/gym

14 units

7k other

€109m

€144m (14)    


€20.8m



 

 

1.     Per CBRE valuation at 31 Mar 2017

2.     58k sq. ft. refurbished out of total 74k sq. ft.

3.     €7.9m net of dilapidation charge received

4.     Est. total cost psf. is net of dilapidation

5.     Excl. additional basement areas (7.5k sq. ft.) and potential new block (c.50k sq. ft.)  but incl. rentalised reception (2k sq. ft.)

6.     No cost attributable to basement area

7.     Office demise only

8.     €40.2m net of dilapidation charge received

9.     57k sq. ft. is committed refurbishment of entire 73k sq. ft.

10.   €9.4m net of dilapidations charge received

11.   Hibernia est. all in cost of 1WML on 100% basis is €77m (i.e. €24m all-in land cost plus €53m total capex). Hibernia's financial accounts show that the cost of acquiring 100% of 1WML was €36m which incl. the vendor's 50% share of capex spent to date of acquisition of €13m. There was c.€28m of capex remaining (based on est. total capex of €53m) to be spent at date of acquisition. Therefore, the total cost of the project is €77m (€36m + €28m + €13m = €77m)

12.   Commercial (incl. reception/townhall) and residential

13.   CBRE valuation assumes capex of €13.8m vs. Company planned capex of €22m. CBRE office ERV of €47.40psf is based on €13.8m capex

14.   €142.4m net of dilapidations charge received

 

Development pipeline            
We have split our pipeline into near term projects and longer term projects and are working to prepare them for future development.  Following the approval of Hanover Building as a committed scheme and the acquisition of Blocks 1, 2 & 5 Clanwilliam Court, there are now five future schemes in the pipeline (if combining Clanwilliam Court and Marine House) which, if undertaken, would deliver and estimated 660,000 sq. ft. of high quality office space when completed.

 

Near term projects

·     Cumberland Place: Planning permission has been received for a new office block of 50,000 sq. ft. in front of the existing block ("Cumberland Phase 2").  Assuming market conditions remain favourable and provided we make sufficient progress in de-risking 1WML and 1SJRQ, we currently expect to commence work on this project during 2018

 

Longer term projects

·     Blocks 1, 2 & 5 Clanwilliam Court: added to the longer-term pipeline following their acquisition in July 2016.  All leases expire before the end of January 2022 and there is potential for repositioning via refurbishment and / or expansion or full redevelopment either with or without the adjoining Marine House, where all leases expire at a similar time

·     Harcourt Square: planning permission for Phase 2 was received in June 2016 giving full planning permission for a development of up to 276,500 sq. ft. of office and ancillary accommodation on the 1.9-acre site.  A new non-renewable six-year lease was entered with the Office of Public Works ("OPW") in December 2016 giving all parties certainty over the OPW's departure date.  We intend to refine our plans for the development between now and December 2022

·     Gateway: we continue to work on plans for the 14-acre site's future redevelopment


Please see further details on the development pipeline below:

 


Sector

Current NIA

(sq. ft.)

NIA post completion

(sq. ft.)

Full purchase price

Comments

Near term






Cumberland Place

(front block)

Office

0k

c.50k

€0m (1)

•    Full planning approval received from DCC

•    Likely to be 2018 commencement

Total near term


0k

c.50k

€0m








Longer term






One Earlsfort Terrace

Office

22k

>28k

€20m

•    Planning permission is in place for two extra floors which would add c.6k sq. ft. to the NIA

•    Potential for redevelopment as part of the wider Earlsfort Centre scheme

Harcourt Square

Office

117k on
1.9 acres

277k

€72m

•    Potential development of 277k sq. ft. of office space and ancillary space

•    Full planning approval received

•    New 6yr lease granted to OPW until Dec 22

Blocks 1, 2 & 5 Clanwilliam Court and Marine House

Office

135k

c.190k

€80m

•    Longer term refurbishment/redevelopment opportunity

•    Potential opportunity to add up to 40% to existing NIA across all 4 blocks

Gateway

Logistics/Office

14.1 acres (2)

c.115k office (3)

€10m

•    Strategic transport location

•    Full or partial redevelopment potential subject to planning

Total longer term


274k

610k

€182m


1.     €51m (incl. costs) paid for existing block which was refurbished and completed in September 2016. No land value attributed to new block at acquisition

2.     Currently 178k sq. ft. of industrial/logistics

3.     Planned new offices of c.115k sq. ft. plus potential to add a further c.130k sq. ft. of offices

 

Asset management

In the year to 31 March 2017 we added €10.4m to contracted rents through lettings and rent reviews, €9.3m net of lease expiries and surrenders, increasing the contracted rent roll by 24% to €48.3m.

 

Summary of letting activity in the period

·     Offices: 10 new lettings of 302,000 sq. ft. and one rent review / lease extension, generating €10.4m of incremental new annual rent.  The weighted average periods to break and lease expiry for the new leases were 10.7 years and 17 years, respectively

·     Residential: Letting activity and lease renewals generated incremental gross annual rent of €93,000 in the period (new leases signed on 75 apartments and leases renewed on 180 apartments). 293 of the Company's 313 apartments are located in Dundrum and, in the period, average rents achieved by the Company for two - bed apartments in Dundrum were  €1,703 per month vs average two - bed passing rents of €1,696 per month. The total net income from residential properties during the year was €5.2m representing a net to gross margin in excess of 80%

 

As set out below, we are in discussions with potential tenants in a number of buildings where we have vacant space.

Key asset management highlights
See also 'Developments and Refurbishments' section above for further details.    

Building management
We established an internal building management department in July 2016.  This was done to take direct control of the management of our multi-let commercial properties and develop closer relationships with our tenants and to provide a better level of service for them: in-house property management is common amongst the major UK and European REITs.  Now that it is fully operational, the department is expected to be cost neutral for Hibernia.  As at 31 March 2017, eight office buildings totalling 431,000 sq. ft. were under direct management.  The remaining five buildings (213,000 sq. ft.) in the "in-place" office portfolio moved to direct management in April 2017.  As new multi-let office developments are completed (e.g. 1WML, 2DC), these will also be managed by the department.          

Flexible workspace arrangement      
In January 2017 we formed a five-year flexible workspace arrangement with Iconic Offices ("Iconic") to establish a serviced office and co-working business in 21,000 sq. ft. of Block 1 Clanwilliam Court (see further details below).  Iconic is a leading Dublin-based flexible workspace provider and was already a tenant of Hibernia in SOBO Works.  Under the agreement Hibernia provides the property and Iconic manages the business operations, with the rent generated being shared.  Hibernia has funded the majority of the fit-out costs (c. €1m) and receives the majority of net rent from the occupier (after amortisation of the cost of fit-out over the five-year period) up to a level equating to headline rent of c. €45 per sq. ft. over the five-year period.  Iconic receives the majority of any net rent above this level.   

This arrangement gives Hibernia the opportunity to learn more about flexible workspace and serviced offices, which are increasingly significant elements of the office market.  In addition, it gives Hibernia contact with small, rapidly growing enterprises which may have larger space requirements in future.  The arrangement commenced in April 2017: as at the end of April over 75% of the workstations and over 50% of the available co-working memberships were contracted, significantly ahead of budgeted performance. 

1WML, South Docks  
Having acquired full control of the development scheme in December 2016, in March 2017 we agreed a pre-let of the top two floors, totalling 35,000 sq. ft., to Informatica on a 17-year lease with six months rent free.  The initial rent is €2.1m per annum, including proportional contributions to the reception and town hall areas.  This pre-let represents c. 29% of the office space in the building, which is due to complete in July 2017.  We are in discussions with a number of parties regarding additional potential lettings.        

Blocks 1, 2 & 5 Clanwilliam Court, D2          
At acquisition in July 2016, the buildings, which total 93,700 sq. ft. of office accommodation and 220 car parking spaces, were 76% let to a range of occupiers, including the ESB, Bord Bia (the Irish Food Board) and Hines Real Estate Ireland, generating annual rent of €2.9m per annum (an average of €34psf).  The flexible workspace arrangement with Iconic (see further details above) formed in January has taken virtually all the remaining vacant space in the buildings: occupancy is now c. 98%.    

Central Quay, South Docks   
We are in discussions with potential tenants regarding the ground floor (7,000 sq. ft.). Inspections are ongoing regarding the vacant third floor (11,000 sq. ft.).         

1 Cumberland Place, D2       
The redevelopment works completed in September 2016 and Twitter took occupation of the c. 96,000 sq. ft. it had pre-let.  The remaining 33,000 sq. ft.  were let to Travelport in September on a lease which commenced in November 2016 with a five-month rent free period.  The contracted rent of the building is now c. €7m with weighted average unexpired lease terms of c. 11 years to break and 21 years to expiry.       

Harcourt Square, D2  
In December 2016 we agreed a new, non-renewable, six-year lease with the Office of Public Works ("OPW") for the entire complex, commencing in January 2017, at an annual rent of €6.0m (€47psf), plus a one-off rent arrears payment of €0.5m.  The building was let to the OPW and occupied by An Garda
Síochána (the police) at a rent of €4.9m per annum on leases the last of which expired in December 2016.  The agreement gives all parties certainty on the tenant's departure date, allows Hibernia to plan for its redevelopment and secures near term income for Hibernia.         

One Dockland Central, IFSC 
Of the 58,000 sq. ft. refurbished, 27,500 sq. ft. (two floors) was pre-let to HubSpot in November 2015 on a 20-year lease at a rent of €1.3m per annum (€45psf) with a six-month rent free period from commencement: the lease commenced in February 2016.  In July 2016 the remaining two floors were let to ComReg on a 20-year lease at a rent of €1.6m per annum (€50psf) with a four-month rent free period.  The average weighted average unexpired lease terms in the building are now 10 years to break and 17 years to expiry.        

Two Dockland Central, IFSC 
All existing tenants vacated the building by the end of March 2017 other than BNY Mellon (which holds a long lease) to enable the repositioning works (similar to those done in Once Dockland Central last year) to take place.  As at 31 March 2017 we had pre-let 66% of the 57,000 sq. ft. under refurbishment: HubSpot, already an occupier of 27,500 sq. ft. in One Dockland Central, has pre-let 32,000 sq. ft. (two floors) in Two Dockland Central on 19 year leases.  They will pay initial rent of €1.8m (€52.50psf) and will receive six months rent free from lease commencement (expected mid-2017).  ENI has pre-let 5,500 sq. ft. on a 20-year lease with a four-month rent free at an initial rent of €55psf.           

Other completed assets        
The remaining completed properties in the portfolio are close to full occupation. The average period to rent review or lease expiry for the "in-place" office portfolio (not including recently completed developments) is 3.2 years: the team is assessing options to maximise returns from the upcoming lease events and continues to carefully monitor the letting markets and work closely with our tenants.    

Financial results and position

 

 As at


31 March 2017


31 March 2016

Movement







IFRS NAV - cent per share


147.9


131.6

+ 12.4%

EPRA NAV - cent per share


146.3


130.8

+ 11.9%

Net debt


 €155.3m


 €52.9m

+ 193.6%

Group LTV


13.3%


5.7%

+ 133.3%

Financial year ended


31 March 2017


31 March 2016

Movement 

Profit before tax for the period


 €119.0m


 €136.3m

12.7% ↓

EPRA earnings


 €15.0m


 €5.1m*

192.5% ↑

IFRS EPS


17.4 cent


20.2 cent

13.9% ↓

Diluted IFRS EPS


17.2 cent


20.1 cent

14.4% ↓

EPRA EPS


2.2 cent


1.5 cent

46.7% ↑

Proposed final DPS


1.45 cent


0.80 cent

 81.3%↑

FY DPS


2.20 cent


1.50 cent

46.7%↑ 

* Excluding one-off €4.9m surrender premium received

 

The key drivers of EPRA NAV per share (equivalent to IFRS Diluted NAV per share), which increased 15.5 cent from 31 March 2016 were:

-     14.9 cent per share from the revaluation of the property portfolio, including 9.1 cent per share in relation to development properties

-     2.2 cent per share from EPRA earnings for the financial year

-     Payment of the FY16 final dividend and FY17 interim dividend, which decreased NAV by 1.6 cent per share

Net debt increased by €102.4m to €155.3m (LTV: 13.3%).  The major expenditure in the year was €85.4m on two acquisitions and €52.5m of capital expenditure on the Group's properties: almost all of this capital expenditure related to development or refurbishment work with c. €1m due to maintenance expenditure.

EPRA earnings for the financial year were €15.0m, up 192.5% compared to the financial year ended 31 March 2016, excluding the €4.9m one-off gain relating to the surrender premium received from FBD in the prior year.  The key driver of the increase was the 52.5% uplift in rental income (excluding the surrender premium) due to new lettings and acquisitions made in the past two years. 

Administrative expenses (excluding performance related payments) were €12.8m (March 2016: €8.7m). The increase of €4.1m mainly relates to a €2.6m increase in amortisation of prepaid remuneration expense (in prior year amortisation only commenced mid-year with the completion of the internalisation) and a €0.8m increase in "Top-up" internalisation expenses due to the uplift in NAV over the year.  Performance related payments were €8.2m (March 2016: €6.1m), comprising performance fees earned of €5.9m (31 March 2016: €6.1m) and a promote fee of €2.3m (31 March 2016:  €nil) received from Starwood relating to the achievement of certain targets on the Windmill Lane development, which will be paid onto the vendors (net of costs and taxes) in shares under the terms of the internalisation.

Net profit for the year was €118.6m, a decrease of 13.3% over the same period last year (10.1% decrease excluding the surrender premium in the prior year) due to lower revaluation gains on investment properties as growth in capital values in the market have moderated.

Financing and hedging       
As at 31 March 2017, the Group's net debt was €155.3m, a loan to value ratio ("LTV") of 13.3%, having increased from a net debt position of €52.9m (LTV of 5.7%) at 31 March 2016 due to capital expenditure on developments and acquisitions.

The Group has two facilities in place, a €400m revolving credit facility ("RCF") which matures in November 2020, and a non-recourse, debt facility with Deutsche Bank for Windmill Lane (the "1WML Facility") of €44.2m which matures in June 2019.  

Given the level of cash and undrawn facilities available and the high cost of the 1WML Facility relative to the RCF, we intend to use the RCF to fund the remaining expenditure on 1WML and to cancel the 1WML Facility in early 2018 when early repayment penalties expire. 

Cash and undrawn facilities as at 31 March 2017 totalled €288.9m or €149.5m net of committed capital (including Hanover Building) and the intended repayment of the 1WML Facility. Assuming repayment of the 1WML facility and the investment of the remaining RCF funds in property, the LTV, based on property values at 31 March 2017, would be c. 28%. Our through-cycle leverage target remains 20 - 30% LTV.

The Group has a policy of fixing or hedging the interest rate risk on the majority of its drawn debt.  Currently it has interest rate caps and swaptions with 1% strike rates in place covering €100m of the RCF.  The interest rate exposure of the Windmill Lane facility has been hedged using an interest rate cap with a 1% strike rate. 

Approval as Alternative Investment Fund Manager ("AIFM")

The Company received authorisation from the Central Bank of Ireland (the "Central Bank") as an internally managed Alternative Investment Fund ("AIF") in July 2016.  Following the internalisation of WK Nowlan REIT Management Limited (the "Investment Manager") in November 2015, the Investment Manager remained authorised as the Alternative Investment Fund Manager ("AIFM") to Hibernia pending authorisation of Hibernia by the Central Bank as an internally managed AIF.  Concurrent with the authorisation of Hibernia, and as requested by Hibernia, the Central Bank withdrew the authorisation of the Investment Manager.

Dividend
Excluding unrealised gains, there has been a substantial uplift in earnings and the Board has proposed a final dividend of 1.45 cent per share (2016: 0.8 cent) which, subject to approval at the Company's AGM, will be paid on 31 July 2017 to shareholders on the register as at 7 July 2017.  All of this final dividend will be a Property Income Distribution ("PID") in respect of the Group's tax exempt property business. 

 

Together with the interim dividend of 0.75 cent, the total dividend for the year will be 2.2 cent (2016: 1.5 cent).  This represents 101% of realised profits received in the financial year.  In future, dividends will likely account for 85-90% of distributable income. As previously stated, the Group's policy regarding interim dividends is that they will usually be 30-50% of the total regular dividends paid in respect of the prior financial year.

Hibernia' Dividend Reinvestment Plan ("DRIP") remains in place, allowing shareholders to instruct Capita, the Company's registrar, to reinvest dividend payments by the purchase of shares in the Company.  The terms and conditions of the DRIP and information on how to apply are available on the Group's website.

 

Selected portfolio information

1.   Top 10 "in-place" office occupiers by contracted rent and % of contracted "in-place" office rent roll





Top 10 Tenants

 Contracted Rent €.m

%

Sector


1

Office of Public Works

6.6

17.4

Government


2

Twitter International Company

5.1

13.4

TMT


3

Bank of Ireland

2.8

7.4

Banking and Capital Markets

4

DEPFA Bank plc

2.0

5.3

Banking and Capital Markets

5

Travelport Digital

1.8

4.7

TMT

6

Bank of New York Mellon

1.6

4.2

Banking and Capital Markets


7

ComReg

1.6

4.2

Government

8

Electricity Supply Board

1.5

3.9

Government


9

HubSpot

1.3

3.4

TMT

10

Riot Games

1.2

3.2

TMT



Top ten total

25.5

67.1




Rest of portfolio

12.5

32.9




Total contracted rent

38.0

100.0



 

2.   "In-place" office contracted rent by business sector

Sector

€ 'm

%

TMT

12.1

31.9

Government

10.3

27.3

Banking & Capital Markets

9.1

23.9

Professional Services

4.3

11.3

Other

1.5

3.8

Insurance & Reinsurance

0.7

1.8

Total

38.0

100.0

 

 

 

 


Principal Risks and Uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results. A description of these risks and the steps which the Group has taken to manage these risks is set out below.

Strategic risks

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Inappropriate business strategy

High

The Group's strategy is not consistent with market conditions affecting the ability of the Group to deliver its strategic objectives.

The Group carries out strategic reviews on an annual basis looking to the next three years. Budgets are prepared and reviewed by the Board each quarter looking at a three-year period.  The Group also assesses the sensitivity of its key ratios to changes in the principal assumptions made and in particular assesses headroom in negative scenarios for viability purposes.

 

The Group pays close attention to economic and market lead indicators and uses its contacts and advisers to ensure it has the best possible understanding of likely economic changes.

 

Medium

Stable

While property price growth has moderated, the Irish economy continues to grow strongly, with GDP growth in 2017 and 2018 forecast at 3.5% and 3.2% respectively.

 

Furthermore, tenant demand remains strong. Against this backdrop, the Group is focusing particularly on the delivery of its development schemes.

 

Market risks

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Weakening economy

High

The value of the investment portfolio may decline and rental income may reduce as a consequence of a decline in levels of economic activity in Dublin and/or Ireland.

 

As a relatively small and "open" economy Ireland depends heavily on international trade and Foreign Direct Investment, making it particularly sensitive to any deterioration in macro-economic conditions elsewhere.  Any reduction in trade with the UK as a result of its expected departure from the EU or a reduction of investment from the USA as a result of the new US administration could impact Ireland's economy negatively. 

 

 

 

The Group has set risk appetite limits, which are the level of risk that the Board considers acceptable in achieving the Group's strategic objectives in the current economic environment. The Group intends to maintain low leverage levels throughout the cycle. 

 

Close monitoring of economic lead indicators and access to market knowledge through the Group's contacts and advisers help to ensure it has the best possible knowledge of the current macro-economic environment to allow it to anticipate and react to potential issues.

 

As noted above, the Group also undertakes regular budgeting and scenario planning exercises to ensure it has sufficient headroom in negative economic scenarios.

 

 

Medium

 

Stable

The UK's decision to leave the EU and the result of the US presidential election have raised external risks for the Irish economy, but it continues to grow strongly and the CSO recently raised GDP forecasts.

 

The Group has increased its WAULT significantly (6.7 years up 56% over the past financial year) and continues to work to increase this further, thus reducing the risk of materially increased vacancy rates in market downturns.

Under- performance of Dublin property market

High

Underperformance by the Dublin property market compared to other Irish property sectors: to date all the Group's investments have been within Dublin.

 

The Group regularly reviews its strategy and asset allocation to determine if it remains appropriate. Particular emphasis is placed on monitoring its committed development projects which will be completed by the end of 2018.

Medium

 

Stable

The Dublin property market is currently performing well, although there is some evidence of a moderation of the rental growth rate.  Dublin remains a key contributor to the Irish economy.

 

 

Development risks

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Poor execution of development projects

High

Development projects are not managed properly causing possible delays, budget overruns and / or failure to achieve expected rental levels, all resulting in reduced returns.

An experienced Director of Development joined in May 2016 to oversee all development projects.  The Group has a Development Committee which closely monitors Group projects, the development supply pipeline in Dublin and the rental market.  Two of the Group's four committed developments have fixed price contracts.  This, coupled with significant in-house experience in managing large scale projects, reduces these risks.

Medium

Decreased

The Group completed three developments totalling 191k sq. ft. in the year, all of which are fully let. As at 31 March 2017 the Group had three committed schemes totalling 295k sq. ft., all of which complete by mid 2018 and which were 25% pre-let. Since 31 March 2017, the Group has added the Hanover Building to its committed developments: an additional 71k sq.ft. of development exposure.

 

Investment risks

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Poor investment of capital or mis-timed sale of assets

 

 

Medium

Investment returns that are below the Group's target rate of return as a result of not reading / reacting to the cycle correctly.

 

 

The Group has an experienced Investment Team which assesses the various Dublin sub-markets at all times.  The Group also closely monitors current and anticipated future economic conditions and reacts accordingly.

 

Prior to completing any acquisition extensive due diligence is undertaken. Board approval is part of the investment decision which provides another layer of scrutiny.

Low

 

 

Decreased

The Group now has a portfolio valued at over €1.1billion and has slowed the rate of acquisition: in the year ended 31 March 2017 it acquired €85m of property in two acquisitions. Looking ahead, the Group's net investment spend of further acquisitions is likely to be relatively modest. 

Inappropriate concentration in single assets, locations, tenants or tenant sectors

Medium

Excessive exposure leading to poor performance or reduced liquidity.

All the Group's investments are within Dublin and the majority are in the office sector: the Group maintains risk exposure targets and limits regarding concentration risks and assesses its portfolio regularly against these.

Low

Stable

The Group has built a balanced portfolio comprising 28 properties since commencement of operations.  As at 31 March 2017 the largest single asset represented 11% of the portfolio by value (12% as at March 2016).  The portfolio's top 10 tenants account for 67% of the contracted rent roll as at March 2017 (71% as at March 2016).

 



 

Asset management risks

Risk

Potential impact

Description / impact

 

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Poor asset management

Medium

Failure to maximise returns from investment portfolio as a result of poor management of voids, breaks and renewals, leading to possible loss of tenants and/or leases agreed at lower than Estimated Rental Value ("ERV").  Poor building management can impact tenant satisfaction and longevity leading to loss of income.  Failure to understand tenant requirements also risks loss of income.

The Group has a dedicated and experienced asset management team which has been expanded in the period.

 

The Group has also formed a separate building management subsidiary which, since April 2017, manages all the Group's multi-let buildings, giving the Group direct day-to-day interaction with its tenants. This ensures the best service to retain tenants and help maximise rental levels.

Low

Decreased

The Group has taken steps to deepen relationships with tenants and increase the level of service they receive by forming a building company to manage multi-let buildings.  It is implementing plans to refurbish and improve older stock on lease expirations or breaks. Where possible, buildings are being rebranded and improved to produce a high standard common to all Hibernia buildings.

 

Finance risks

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Inappropriate capital structure for market conditions

Medium

Inappropriate capital structure may lead to the Group being unable to meet goals through being too highly geared and incurring high interest costs and risking covenant breaches or being under geared and thus limiting returns.

The Group has a target loan to value ratio of 20-30% through the cycle and under the investment policy debt is limited to a 40% LTV ratio at incurrence: these are well below covenant limits.  In addition, any new facilities entered into must be approved by the Board.

 

Hedging instruments are used to limit the Group's interest rate exposure and the Group has a policy of hedging the majority of its interest rate exposure on its long-term drawn debt.

 

Active and regular monitoring of debt covenants is undertaken as well as stress-testing to see what downside scenarios the Group can withstand without breaching debt covenants.

Low

Stable

At 31 March 2017 the Group indebtedness remains modest with a LTV ratio of 13% (31 March 2016: 6%).  With committed capital expenditure in the next 18 months expected to increase the LTV ratio to c. 19%.

 

No covenant breaches have occurred in the period.

Lack of available funds for investment

Medium

Target returns impacted, new investment limited through lack of available funds meaning the Group is unable to exploit opportunities identified.

The Group actively manages its finance requirements and continues to monitor availability to ensure it is well placed to take advantage of market investment opportunities as they arise.

The Group actively reviews its portfolio of properties and considers the disposal of those properties that may no longer offer an adequate return. Any proceeds received can be used to reduce debt or fund further acquisitions.

Low

Stable

At 31 March 2017 the Group had cash and undrawn facilities totalling €289m, or €150m net of committed capital expenditure and the anticipated repayment of the Windmill Lane facility (31 March 2016: €369 or €265m).  The Group continues to monitor capital requirements to ensure that future requirements are anticipated and met within the limits of its leverage targets.

People risks

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Loss or shortage of key staff or lack of motivation

Medium

Ability to achieve strategic goals impacted through loss of expertise or key personnel or lack of motivation of staff.

 

The Group has a team of directly employed staff following the internalisation of the Investment Manager in 2015 and a remuneration system that is linked closely to individual and Group performance. The Group has introduced a long-term incentive plan (funded primarily through the existing performance fee arrangements) as part of performance remuneration in order to help better align employees' interests with shareholders' and encourage retention. The Remuneration Committee is working on plans for employee incentivisation post November 2018 when the current arrangements expire.

Low

Stable

The Group has implemented competitive remuneration plans, clear employee objectives and development plans, and regular employee engagement to proactively identify and address potential issues.  The Nominations and Remuneration Committees of the Board regularly consider succession planning and talent management, respectively.

 



 

Regulatory & tax risk

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

Regulatory, legislative, tax, environmental or planning changes

 

 

Medium

Lower returns because of changes. For example, in 2016 the Government introduced rent controls for residential tenancies which impacted the Group's residential properties. The Finance Act 2016 changes did not impact the Group directly but had the potential to impact property values, though we have seen no discernible impact on the central Dublin office market to date. Failure to comply with any changes may also result in reputational risk.

The Management Team and the Board spend substantial time, and retain external experts as necessary, to ensure compliance with current and possible future regulatory requirements.

The Group has formed a sustainability committee to manage its environmental and social impact.

Low

 

 

Stable

Our strategy in managing this risk together with a relatively unchanged regulatory environment has meant the risk has remained relatively stable over the last year.

Failure to comply with requirements of Irish REIT Regime

High

Achievement of strategic goals impacted through inability to continue as a REIT and a greater tax burden.

 

Effective monitoring of REIT requirements compliance at a senior level with review by Audit Committee

 

Low

Stable

This is completed on a regular basis and is the subject of review by our retained tax advisers, KPMG.

Loss of life or injury to staff, a contractor or member of the public as a result of an accident at one of the Group's buildings

Medium

Risks can include, but are not limited to, health and safety incidents and/or loss of life or injury to employees, contractors, members of the public or tenants. Reputational damage through failure to prevent or manage effectively incidents occurring.

The Group has policies and procedures in place for health and safety. The Group has regular risk assessments and audits to proactively address the key health & safety areas including employee, contractors, tenant & public safety.  The Group ensures that all contractors engaged maintain the highest standards of health and safety and have appropriate and adequate insurance in place. All staff who visit work sites and buildings have completed the "safe pass" course.  The Group takes all appropriate actions to ensure it is not exposed to uninsured risks in respect of all normal insurable risks in relation to health and safety.

Low

Stable

The Group continues to maintain high standards of health and safety.

 

 Business interruption

Risk

Potential impact

Description / impact

Mitigation

Potential impact post mitigation

Change from 31 March 16

Comment

An external event occurs (e.g. natural disaster, war, terrorism, civil unrest, cyber-attack) which significantly and negatively affects the Group's operations

High

Significant damage to Group's business as a result of such an event.

Within Dublin the Group monitors its geographic exposure, and maintains a balance between various sub-markets.

 

The Group has business continuity plans in place, has improved its IT security measures during the financial year, and has insurance policies to cover catastrophic events.

 

Low

 

Increased

We believe the risk of cyber-attack has increased for all businesses in the past year though we have taken steps to address this through improving our IT security measures. The risk of other external factors remains stable.  

 

 


Consolidated Income Statement

For the financial year ended 31 March 2017

 

 



Financial year ended 31 March 2017

 

Financial year ended 31 March 2016

 

Notes


€'000

 

€'000

 






Total Revenue

7


46,372 


32,786







Rental income

8


42,519 


32,786 

Net property expenses

9


(2,838 )


(2,497 )

Net rental income



39,681 


30,289 







Revaluation of investment properties

19


103,525 


125,056 

Other gains and (losses)

10


2,476 


(171 )

Total income after revaluation gains and losses


145,682 


155,174 







Expenses






Performance related payments

5


(8,215 )


(6,069 )

Administration expenses

11


(12,770 )


(8,696 )

Total operating expenses



(20,985 )


(14,765 )

Operating profit



124,697 


140,409 







Finance income

14


10 


153 

Finance expense

14


(5,671 )


(4,240 )

Profit before tax



119,036 


136,322 

Income tax

15


(450 )


475 

Profit for the financial year



118,586 


136,797 







Earnings per share






Basic earnings per share (cent)

17


17.4 


20.2 

Diluted earnings per share (cent)

17


17.2 


20.1 

EPRA earnings per share (cent)

17


2.2 


1.5 

Diluted EPRA earnings per share (cent)

17


2.2 


1.5 

 

 The notes on pages 30 to 76 form an integral part of these consolidated financial statements

 



 

Consolidated statement of comprehensive income

For the financial year ended 31 March 2017

 

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016


Notes

 €'000


 €'000






Profit for the financial year


118,586 


136,797 






Other comprehensive income, net of income tax









Items that will not be reclassified subsequently to profit or loss:



Gain on revaluation of property

18

186 


323 






Items that may be reclassified subsequently to profit or loss:



Net fair value loss on hedging instruments entered into for cash flow hedges


(105 )


(112 )






Total other comprehensive income


81 


211 






Total comprehensive income for the financial year attributable to owners of the Company


118,667 


137,008 

 The notes on pages 30 to 76 form an integral part of these consolidated financial statements.



 

Consolidated Statement of Financial Position



31 March 2017


31 March 2016


Notes

 €'000


 €'000

Assets





Non-current assets





Property, plant and equipment

18

4,801


2,946

Investment Property

19

1,167,387


927,656

Other financial assets

21

267


365

Trade and other receivables

22

8,536


11,666

Total non-current assets


1,180,991


942,633

Current assets





Trade and other receivables

22

10,108


18,880

Cash and cash equivalents


18,148


23,187



28,256


42,067

Non-current assets classified as held for sale

23

385


3,921

Total current assets


28,641


45,988






Total assets


1,209,632


988,621

Equity and liabilities





Capital and reserves





Issued capital and share premium

24

678,110


672,398

Other reserves

25

9,759


6,136

Retained earnings

26

325,983


218,040

Total equity


1,013,852


896,574

Non-current liabilities





Financial liabilities

27

171,138


72,724

Total non-current liabilities


171,138


72,724






Current liabilities





Trade and other payables

28

24,642


19,323

Total current liabilities


24,642


19,323






Total equity and liabilities


1,209,632


988,621






IFRS NAV per share (cents)

29

147.9


131.6

EPRA NAV per share (cents)

29

146.3


130.8

Diluted IFRS NAV per share (cents)

29

146.3


130.7

 

The notes on pages 30 to 76 form an integral part of these consolidated financial statements.



 

Consolidated statement of changes in equity





Financial year ended 31 March 2017




Notes

Share Capital


Share Premium

Retained earnings


Other reserves


Total



€'000


€'000

€'000


€'000


€'000

Balance at start of financial year


68,125


604,273

218,040


6,136


896,574

Total comprehensive income for the financial year










Profit for the financial year


 -  


 -  

118,586


 -  


118,586

Total other comprehensive income


 -  


 -  

 -  


81


81



68,125


604,273

336,626


6,217


1,015,241

Transactions with owners of the Company

recognised directly in equity






Dividends

16

 -  


 -  

(10,624)


 -  


(10,624)

Issue of ordinary shares for cash

22

 -  


 -  

 -  


 -  


 -  

Share issue costs

26

 -  


 -  

(19)


 -  


(19)

Share based payments

13

420


5,292

 -  


3,542


9,254











Balance at end of financial year


68,545


609,565

325,983


9,759


1,013,852

 

 

 

 




Financial year ended 31 March 2016



 

 

Notes

Share Capital


Share Premium


Retained earnings


Other reserves


Total



€'000


€'000


€'000


€'000


€'000

Balance at start of financial year


67,032


590,955


89,375


5,772


753,134

Profit for the financial year


 -  


 -  


136,797


 -  


136,797

Total other comprehensive income


 -  


 -  


 -  


211


211



67,032


590,955


226,172


5,983


890,142

Transactions with owners of the Company recognised directly in equity











Dividends

16

 -  


 -  


(8,121)


 -  


(8,121)

Issue of ordinary shares for cash

22

 -  


 -  


 -  


 -  


 -  

Share issue costs

26

 -  


 -  


(11)


 -  


(11)

Share based payments

13

1,093


13,318


 -  


153


14,564












Balance at end of financial year


68,125


604,273


218,040


6,136


896,574

 

 

 

The notes on pages 30 to 76 form an integral part of these consolidated financial statements.

Consolidated Statement of Cash Flows

For the financial year ended 31 March 2017

 

Notes

 Financial year ended 31 March 2017


 Financial year ended 31 March 2016

Cash flows from operating activities


 €'000


 €'000

Profit for the financial year


118,586


136,797

Adjusted non-cash movements:





Revaluation of investment properties


(103,525)


(125,056)

Other gains and losses


380


(2,312)

Share based payments

25c

8,874


5,925

Deferred remuneration paid

11

4,444


4,191

Depreciation

11

207


65

Property income paid/(payable) in advance


5,118


(1,807)

Finance expense

14

5,661


4,087

Income tax charge/(credit)


450


(475)

Operating cash flow before movements in working capital


40,195


21,415

Decrease/(Increase) in trade and other receivables


2,106


(3,005)

(Decrease)/Increase in trade and other payables


(1,805)


8

Net cash flow from operating activities


40,496


18,418

Cash flows from investing activities





Purchase of fixed assets

18

(225)


(46)

Cash paid for/ expended on investment property

30

(137,200)


(208,159)

Sale of investment property


-


4,951

Proceeds from the sale of non-current assets classified as held for sale


9,534


12,226  

Net proceeds from loans


-


3,476

Business acquisition (Net of acquired cash)


 -  


237

Prepaid remuneration


 -  


(7,104)

Income tax paid


(367)


(384)

Finance income and expense


(4,511)


(2,813)

Net cash flow absorbed by investing activities


(132,769)


(197,616)

Cash flow from financing activities





Dividends paid

16

(10,624)


(8,121)

Borrowings drawn

27

97,877


75,529

Arrangement fee paid re bank facilities

27

 -  


(3,718)

Derivatives premium


 -  


(342)

Share issue costs

26

(19)


(11)

Net cash inflow from financing activities


87,234


63,337

Net (decrease) in cash and cash equivalents


(5,039)


(115,861)

Cash and cash equivalents start of financial year


23,187


139,048

(Decrease) in cash and cash equivalents


(5,039)


(115,861)

Net cash and cash equivalents at end of financial year


18,148


23,187

 

The notes on pages 30 to 76 form an integral part of these consolidated financial statements.

Notes Forming Part of the Preliminary results

1.        General Information

Hibernia REIT plc, the "Company", together with its subsidiaries and associated undertakings as detailed in Note 33 (the "Group"), is engaged in property investment and development (primarily office) in the Dublin market with a view to maximising its shareholders' returns.

The Company is a public limited company and is incorporated and domiciled in Ireland. The address of the Company's registered office is South Dock House, Hanover Quay, Dublin, D02 XW94, Ireland.

The Ordinary Shares of the Company are listed on the primary listing segment of the Official List of the Irish Stock Exchange (the ''Irish Official List'') and the premium listing segment of the Official List of the UK Listing Authority (the ''UK Official List'' and, together with the Irish Official List, the ''Official Lists'') and are traded on the regulated markets for listed securities of the Irish Stock Exchange and the London Stock Exchange plc (the ''London Stock Exchange'').

2.        Basis of preparation

a.   Statement of compliance and basis of preparation

These consolidated financial statements of Hibernia REIT plc are non-statutory consolidated financial statements. The Auditors have not completed their audit but the Directors expect that there will be no changes to the financial information between these non-statutory consolidated financial statements and the statutory financial statements that will be contained in the Annual Report. The Annual report of the Group will be issued at the end of June 2017. The consolidated financial statements of Hibernia REIT plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and the Companies Act 2014. IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. The Group financial statements therefore comply with Article 4 of the EU IAS Regulation. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings and financial instruments that are measured at fair value at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

The Group has not early adopted any forthcoming IASB standards. Note 3 sets out details of such upcoming standards.

b.   Functional and presentation currency

These consolidated financial statements are presented in Euro, which is the Company's functional currency and the Group's presentation currency.

c.   Basis of consolidation

The financial statements incorporate the consolidated financial statements of the Company and entities controlled by the Company (its subsidiaries). The results of subsidiaries and joint arrangements acquired or disposed of during the financial year are included from the effective date of acquisition or to the effective date of disposal. The accounting policies of all consolidated entities are consistent with the Group's accounting policies.  All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Business combinations

Acquisitions of subsidiaries and businesses are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value. Acquisition related costs are expensed as incurred. 

d.   Assessment of going concern

The consolidated financial statements have been prepared on a going concern basis. The Directors have performed an assessment of going concern for a minimum period of 12 months from the date of this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 31 March 2017 of €18m (31 March 2016: €23m), is generating positive operating cash‑flows and, as discussed in Note 27 has in place debt facilities with an average period to maturity of 3.4 years and an undrawn balance of €289m at 31 March 2017 (31 March 2016: €325m). The Group has assessed its liquidity position and there are no reasons to expect that the Group will not be able to meet its liabilities as they fall due for the foreseeable future.

e.   Significant judgements

The preparation of the financial statements may require management to exercise judgement in applying the Group's accounting policies. The following are the significant judgements and key estimates used in preparing these financial statements:

Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share based transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

-      Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

-      Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly

-      Level 3 inputs are unobservable inputs for the asset or liability.

Valuation basis of investment properties

All investment properties are valued in accordance with their current use, which is also the highest and best use, except for:

-      Harcourt Square where, in accordance with IFRS 13:27, the valuation takes into account its potential as a refurbished and extended asset which reflects the asset in its highest and best use.  It is the Directors' intention to pursue the redevelopment of this property when the existing lease has expired.

-      Hanover Building, which was occupied by BNY Mellon until 31/03/2017, has been valued on the basis of a refurbishment.

-      Cannon Place apartment building which has been valued on a break up basis which is the highest and best use for this building.

-      Block 3 Wyckham Point: This property is held for long-term property rental and was developed on this basis. The units comprising this property were completed on a phased basis by the Group during 2015. VAT was payable both on the acquisition and on the construction costs which were treated as irrecoverable and recognised as part of the capital costs of the project. If this property is sold within five years of completion, i.e. before mid-2020, the Group would be obliged to charge VAT on the sale but would be entitled to a recovery of the VAT incurred on the construction and acquisition costs on an apportioned basis according to the VAT life of the building. As this property is not intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the valuer's valuation of this asset was deemed necessary.

Provisions for taxes

Where properties have been significantly developed or redeveloped by the Group, if the asset was to be sold within three years of completion, the Group would be liable to tax on any profits arising on the disposal under S.705G Taxes Consolidation Act 1997. No provision is currently being made for potential deferred tax on revaluations on these properties that have been significantly developed, since in the judgement of the Directors, these assets are held for longer term rental income and capital appreciation and therefore they will not be sold within the three-year period.

f.    Key estimates

Valuation of investment properties 

The Group's investment properties are held at fair value and were valued at 31 March 2017 by the external valuer, CBRE Unlimited, a firm employing qualified valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Standards (January 2014 (revised April 2015) (the "Red Book"). Further information on the valuations and the sensitivities is given in Note 19. 

The Board conducts a detailed review of each property valuation to ensure that appropriate assumptions have been applied. Property valuations are complex and involve data which is not publicly available and a degree of judgement. The valuation is based upon the key assumptions of estimated rental values and market based yields. The approach to developments and refurbishments is on a residual basis and factors such as the assumed timescale, the assumed future development cost and an appropriate finance and/or discount rate are used to determine the property value together with market evidence and recent comparable properties where appropriate. In determining fair value, the valuers refer to market evidence and recent transaction prices for similar properties. 

The Directors must be satisfied that the valuation of the Group's properties is appropriate for inclusion in the accounts. The fair value of the Group's properties is based on the valuation provided by CBRE. This valuation is based on future cashflows from rental income both for the current lease period and future estimated rental values.  

In accordance with the Group's policy on lease incentives, the valuation provided by CBRE is adjusted by the fair value of the rental income accruals ensuing from the recognition of these incentives. The total reduction in the external valuer's investment property valuation in respect of these adjustments was €4.1m (31 March 2016: €2.6m).  

There were no other significant judgements or key estimates that might have a material impact on the consolidated financial statements at 31 March 2017.

3.        Application of new and revised International Accounting Standards (IFRS)

Standards and amendments to standards that became applicable during the financial year

Standards   

IFRS 14 Regulatory Deferral Accounts 

Amendments to standards 

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)

Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)

Equity Method in Separate Financial Statements (Amendments to IAS 27)

Annual Improvements 2012-2014 Cycle

Disclosure Initiative (Amendments to IAS 1)

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)

Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)

Disclosure Initiative (Amendments to IAS 7)

Annual Improvements to IFRS Standards 2014-2016 Cycle - Amendments to IFRS 12

 

There were no impacts on the financial statements from the adoption of these new accounting standards during the financial year.

Prospective Accounting changes

The following standards and interpretations to existing standards have been published by the International Accounting Standards Board ("IASB") and, to the extent indicated, have been adopted by the European Union ("EU") and will be mandatory for future accounting periods. The Company has not early adopted these standards or interpretations, none of which is expected to have a material impact on the Group financial statements.

•      IFRS 2 Share-based Payment amendments to clarify the standard in relation to the accounting for cash-settled share-based payment transactions that include a performance condition, the classification of share-based payment transactions with net settlement features, and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. Is effective for annual periods beginning on or after 1 January 2018 (Subject to EU endorsement).

•      IAS 7 Statement of Cashflows amendments to clarify disclosures and is effective for annual periods beginning on or after 1 January 2017. (Subject to EU endorsement)

•      IFRS 9 Financial Instruments was issued in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes a revised classification and measurement model, a forward looking 'expected credit loss' impairment methodology and modifies the approach to hedge accounting. Unless early adopted, the standard is effective for accounting periods beginning 1 January 2018. (Subject to EU endorsement)

•      IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, and IAS 28 Investment in Associates and Joint Ventures are amended for accounting periods beginning on or after 1 January 2016 to clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture. (EU endorsement currently halted)

•      IAS 12 Income taxes, amendments to deferred tax recognition. Effective for periods beginning on or after 1 January 2017. (Subject to EU endorsement).

•      IFRS 15 Revenue from Contracts with Customers, provides a single, principles based five-step model to be applied to all contracts with customers and is applicable to an annual reporting period beginning on or after 1 January 2018. (Subject to EU endorsement)

•      IFRS 16 Leases, sets out the principles for the recognition, measurement, presentation and disclosure of leases. It is effective for annual periods commencing on or after 1 January 2019 and supersedes IAS 17 Leases and SIC 15: Operating leases - Incentives. (Subject to EU endorsement)

•      IAS 40 Investment property. Amends paragraph 57 to state that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management's intentions for the use of a property by itself does not constitute evidence of a change in use.  The list of examples of evidence in paragraph 57(a) - (d) is now presented as a non-exhaustive list of examples instead of the previous exhaustive list. Is effective for annual periods beginning on or after 1 January 2018 (Subject to EU endorsement).

•      Annual Improvements to IFRS: 2012-2015 cycle (effective for accounting periods beginning on or after 1 July 2016);

•      Annual Improvements to IFRS: 2014-2016 cycle (effective for accounting periods beginning on or after 1 January 2018 apart from the amendment to IFRS 12 Disclosure of interests in other entities which is effective from 1 January 2017);

Impacts expected from relevant new or amended standards

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Measurement and Recognition and is effective for annual periods beginning on or after 1 January 2018. While minor amendments may arise due to changes in hedge accounting, implementation is not expected to have a material impact on the Group's financial statements.

IFRS 15 Revenue from Contracts with Customers is valid for periods starting on or after 1 January 2018 and specifies how and when an entity recognises revenue from a contract with a customer. This will be effective for the financial year ended 31 March 2019. The Group has reviewed its revenue streams to consider the impact of IFRS 15 on the financial statements. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied. The Group's main source of revenue is from the leasing of properties and revenue is recognised in accordance with IAS 17: Leases and SIC 15:  Operating Leases-Incentives. Rental and other income is recognised over the period of the contract in accordance with the principles in IFRS 17. IFRS 15 will apply to service charge income, performance fees and miscellaneous minor contracts but it is expected that there will be no material impact from the adoption of this standard.

IFRS 16 Leases is applicable for annual periods beginning on or after 1 January 2019 will apply to the operating leases applicable to the Group's Investment property but is not expected to materially change the Group's accounting in relation to these items as lessor accounting arrangements remain largely unchanged from IAS 17.

The remainder of these amendments are not expected to have a material impact on the Group's consolidated financial statements.

4.        Significant accounting policies

a)    Revenue recognition

Revenue comprises rental income and surrender premia, service charge income and fees from other activities associated with the Group's property business.

Revenue is recognised in the Consolidated Income Statement when it meets the following criteria:

-     It is probable that any future economic benefit associated with the item of revenue will flow to the Group; and

-     The amount of revenue can be measured with reliability.

Rental Income

Rental income arises on properties which are included as investment properties in the Consolidated Statement of Financial Position and which are leased out under operating leases or similar arrangements. Rental income is recognised in the Consolidated Income Statement on an accrual basis as revenue on a straight-line basis over the agreement term. Rent received in advance is deferred in the Consolidated Statement of Financial Position and recognised in the period to which it relates to.  All incentives given to tenants under lease arrangements are recognised as an integral part of the net consideration agreed for the use of the leased asset and the aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term. The lease term is either the period to the expiry date of the lease or to the next break point, i.e. where there is a legal right for the tenant to break the lease.  The value of the resulting accrual is included within the respective property value in the Consolidated Statement of Financial Position.

Surrender payments for early lease terminations are reflected, net of any costs such as dilapidation or legal costs relating to the lease, in the accounting period in which the surrender took place.

Where adjustments to rent or a review under a lease are unsettled at the reporting date, these are included in income based on a reasonable estimate of the expected settlement amount and then adjusted to the actual amount when settlement is reached. Surrender payments for early lease terminations are reflected, net of any costs such as dilapidation or legal costs relating to the lease, in the accounting period in which the surrender took place.

Service Charges

Service charges and other sums receivable from tenants are recognised on an accrual basis by reference to the stage of completion of the relevant service or transactions at the reporting date. These services generally relate to a 12‑month period.

Leases

The Directors have considered the potential transfer of risks and rewards of ownership in accordance with IAS 17  Leases for all the Group's rental agreements and judged these arrangements all to be operating leases. 

Details on all aspects of rental payments and concessions under leases are provided to the external valuers at each reporting date for their consideration in assessing the fair value of the properties concerned.

b)   Direct property costs

Direct costs comprise service charges and other costs directly recoverable from tenants and non-recoverable costs directly attributable to investment properties and other revenue streams.

c)    Finance income and expense

Finance expenses directly attributable to the construction or production of investment properties which take a considerable length of time to get ready for rental to tenants, are added to the costs of those properties until such time as the properties are substantially ready for use. All other finance expenses and income are recognised in the profit and loss account as they occur using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the interest income, interest expense and fees paid and received over the relevant period.

d)   Administration Expenses

Administration expenses are recognised when incurred in the Consolidated Income Statement.

e)   Share based payments

A share-based payment is a transaction in which the entity receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity. Equity-settled share based payments are measured at the fair value of the equity instruments on the grant date. Details regarding the determination of the fair value of equity-settled share based transactions are set out in Note 13. The fair value determined at the grant date of the equity-settled share based payment is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of equity instruments which will vest, with a corresponding increase in equity. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee share benefits reserve. Share based payments for which the shares have not been issued are remeasured to fair value at each accounting date.

Equity settled share based transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be measured reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

The fair value of the relevant services is recognised as an expense over the accounting period in which they are incurred. 

f)    Taxation

Hibernia REIT plc elected for Real Estate Investment Trust (REIT) status on 11 December 2013. As a result, the Company will not pay Irish corporation tax on the profits and gains from qualifying rental business in Ireland provided it meets certain conditions. Corporation tax is still payable as normal in respect of income and gains from the Group's residual business (generally any non-investment property rental business including building management services). The Group is also liable to pay other taxes such as VAT, capital gains tax, relevant contracts tax, local property tax, property rates, payroll taxes and foreign taxes as normal.

g)    Joint arrangements

A joint arrangement is an arrangement over which two or more parties have joint control. Joint control is established when no one entity has control of the arrangement on its own; all the entities involved in the arrangement control it collectively. A joint arrangement is classified as a joint venture when the Group has rights to the net assets of the arrangement rather than to the individual assets and liabilities, revenues and expenses. Otherwise the joint arrangement is classified as a joint operation. This classification is based upon an assessment of the structure and legal form of the arrangement.

Where the joint arrangement is recognised as a joint operation, the Group recognises its share of assets and liabilities held jointly as well as its share of revenues and expenses according to IFRS applicable to the items being recognised.

h)   Investment properties

Investment properties are properties held to earn rental income and/or for capital appreciation (including property under construction for such purposes). Properties are treated as acquired at the point at which the Group assumes the significant risks and rewards of ownership. This occurs when:

(1)        It is probable that the future economic benefits that are associated with the investment property will flow to the Group;

(2)        There are no material conditions which could affect completion of the acquisition; and

(3)        The cost of the investment property can be measured reliably.

Investment properties are measured initially at cost, including transaction costs. After initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in the Consolidated Income Statement in the period in which they arise.

Investment properties and properties under development are professionally valued on a twice-yearly basis or as required by qualified external valuers using inputs that are observable either directly or indirectly for the asset in addition to unobservable inputs and are therefore classified at level 3. The valuation of investment properties is further discussed above under Note 2.(f).

The valuations of investment properties and investment properties under development are prepared in accordance with the RICS Valuation - Professional Standards global January 2014 including the International Valuation Standards and the RICS Valuation - Professional Standards UK January 2014 (revised April 2015) ("the Red Book").

When the Group begins to redevelop an existing investment property, or property acquired as an investment property, for future use as an investment property the property remains an investment property and is accounted for as such. Expenditure on investment properties is capitalised only when it increases the future economic benefits associated with the property. All other expenditure is charged to the Consolidated Income Statement. Interest and other outgoings, less any income, on properties under development are capitalised. Borrowing costs, that is interest and other costs incurred in connection with borrowing funds, are recognised as part of the costs of an investment property where directly attributable to the purchase or construction of that property. Borrowing costs are capitalised in accordance with the policy described in Note 4.d.

In accordance with the Group's policy on revenue recognition (Note 4.a), the value of accruals in relation to the recognition of lease incentives under operating leases over the term of the lease is included in the fair value assessment of the investment property to which the accrual relates.

Where amounts are received from departing tenants in respect of "dilapidations", i.e. compensation for works that the tenant was expected to carry out at the termination of a lease but the tenant, in agreement with the Group, pays a compensatory sum in lieu of carrying out this work, the Group applies these amounts to the cost of the property. The value of the work to be done is therefore reflected in the fair value assessment of the property when it is assessed at the end of the period.

An investment property is de‑recognised on disposal, i.e. when the significant risks and rewards are transferred outside the Group's control, or when the investment property is permanently removed from use and no future economic benefits are anticipated from the disposal. Any gain or loss arising on de‑recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Consolidated Income Statement in the period in which the property is de‑recognised.

i)    Property, plant and equipment

Owned property which is occupied by the Group for its own purposes is de-recognised as investment property at the date occupation commenced and recognised as owner occupied property within property, plant and equipment at its fair value at that date. Property used for administration purposes is stated in the Consolidated Statement of Financial Position at its revalued amount, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ from materially from those that would be determined using fair values at the end of each accounting period.

Any revaluation increase from this property is recognised in other comprehensive income and accumulated in equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously expensed.  A decrease in the carrying amount of this property arising on revaluation is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the property's revaluation reserve relating to a previous revaluation of that asset.

Depreciation on revalued property is recognised in profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation reserve is transferred directly to retained earnings.

Fixtures and fittings are stated at costs less accumulated depreciation and impairment losses.

Depreciation is recognised to write off the cost or value of assets less their residual value over their useful lives. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

The estimated useful lives for the main asset categories are:

Land and buildings                                                                                   50 years

Fixtures and fittings/ Leasehold improvements                             5 years

Office and computer equipment                                                         3 years

j)    Financial instruments

Financial assets and liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets or liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial recognition. Transaction costs attributable to the acquisition of financial assets or liabilities at fair value through profit or loss are recognised immediately in the Consolidated Income Statement.

Financial assets and liabilities

Effective interest method:  The Group uses the effective interest method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Loans and receivables:  Loans and receivables (including loans to subsidiaries) are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans are initially recorded at fair value plus transaction costs. They are subsequently accounted for at amortised cost using the effective interest method.

Derivatives: The Group utilises derivative financial instruments to hedge interest rate exposures. Derivatives designated as hedges against interest risks are accounted for as cash flow hedges. Hedge relationships are documented at inception. This documentation identifies the hedge, the item being hedged, the nature of the risks being hedged and how the effectiveness is measured during its duration.  Hedges are measured for effectiveness at each accounting date and the accounting treatment of changes in fair value revised accordingly. The Group's cashflow hedges are against variability in interest costs and the effective portion is recognised in equity in the hedging reserve, with the ineffective portion being recognised in profit or loss within finance costs.

Financial liabilities: The Group has borrowing facilities in place both as general facilities and secured on specific projects. The Company has short term loan and debenture transactions with subsidiaries. These are measured initially at fair value, after considering transaction costs, and carried at amortised cost, with all attributable costs either charged to profit or loss or capitalised into investment property costs as appropriate. All costs are based on the effective interest rate method.

k)   Trade receivables and payables

Trade receivables and payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method. Where there is objective evidence of loss, appropriate allowances for any irrecoverable amounts are recognised in the Consolidated Income Statement.

l)    Cash and cash equivalents

Cash and cash equivalents includes cash at banks in current accounts, deposits held at call with banks and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

m)  Equity and share issue costs

The equity of the Company consists of ordinary shares issued. Shares issued are recorded at the date of issuance. The par value of the issued shares is recorded in the share capital account. The excess of proceeds received over the par value is recorded in the share premium account. Direct issue costs in respect of the issue of shares are accounted for in the retained earnings reserve, net of any related tax deduction.

n)   Dividends

Interim dividends are recognised as a liability of the Company when the Board of Directors resolves to pay the dividend and the shareholders have been notified in accordance with the Company's Articles of Association. Final dividends of the Company are recognised as a liability when they have been approved by the Company's shareholders.

o)   Net Asset Value (NAV)

The IFRS NAV is calculated as the value of the Group's assets less the value of its liabilities based on IFRS measures. EPRA NAV is calculated in accordance with the European Public Real Estate Association (EPRA) Best Practice Recommendations: December 2014.

The EPRA Net Asset Value per share includes investment property, other non-current asset investments and trading properties at fair value. For this purpose, non-current assets classified as held for sale are included at fair value. It excludes the fair value of movement financial instruments and deferred tax and related goodwill.

5.        Remuneration to the Investment Manager

On 27 October 2015 at an Extraordinary General Meeting of the Company, the shareholders approved the acquisition of the Investment Manager, WK Nowlan REIT Management Limited. On 5 November 2015, the Company completed this acquisition by acquiring the entire share capital (100% of voting equity) of WK Nowlan REIT Management Limited and its parent, Nowlan Property Limited (together "the Acquirees") from the companies' shareholders (the "Vendors"). This transaction was carried out to internalise the investment management function.

As part of the arrangements in this transaction, amounts were paid or agreed to be paid for future services. These arrangements continue until November 2018, the date on which the Investment Management Agreement ("IMA") was due to expire.

These arrangements fall into three categories: 

A.   Remuneration for future services

A payment of €14.2m, the "Initial Payment", was made in November 2015. The fair value of this payment was €15.1m due to the movement in the share price for the share based portion.

This payment was made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. The clawback arrangements over one third of this payment is removed on each anniversary of the acquisition date until November 2018. €4.4m was recognised as "Prepaid remuneration expenses" (Note 11) in the Consolidated Income Statement in the financial year ended 31 March 2017 (31 March 2016: €1.8m) and €7.1m (31 March 2016: €11.6m) is included in trade and other receivables as prepaid remuneration (Note 22). 

B.  Performance related payments

Performance related payments comprise absolute and relative performance fees as described under the IMA. During the year, the shareholders agreed to correct the method of calculation for the relative fee. These amounts are paid annually to the Vendors of the Investment Manager, contingent for the majority of Vendors on the fulfilment of service obligations.

The performance fee due for 2017 is €5.9m (31 March 2016: €6.1m). Under arrangements made at the time of the internalisation, 85% of this is due to the Vendors, representing €5.0m (31 March 2016: €5.1m) (the remainder being used to incentivise non-Vendor staff). In addition, an amount of €2.3m (31 March 2016: €nil), relating to a promote fee and development management fee, due to the Vendors arising out of payments made by Starwood on the termination of the Windmill joint arrangement is included bringing the total due to Vendors in relation to performance related payments for the period to €7.3m (31 March 2016: €6.1m). Including the amounts reserved for non-vendor staff, performance related payments total €8.2m.

C.  "Top-up" internalisation expenses for financial year

"Top-up" internalisation expenses for financial year are €1.1m (31 March 2016: €0.3m) and relate to management fees that would have been due under the IMA due to increases in NAV in the period since internalisation.  These payments are included in administration expenses for the period (Note 11).


Summary of performance related payments



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Performance fee


5,907 


6,069 

Windmill promote and development management fees


2,308 


 -  

Total performance related payments for the financial year


8,215


6,069

"Top-up" internalisation expenses (Note 11)


1,101 


311 






Total


9,316 


6,380 

Of which are:





Payable to Vendors


8,430 


5,470 

Payable to employees


886 


910 






Total


9,316 


6,380 






Of which share based (Note 13)


8,873 


5,925 

 

The total due to Vendors for the financial year is therefore €8.4m (31 March 2016: €5.5m), all of which is payable in shares of the Company (Note 13). The balance is reserved for employee incentives.

The payments above, while remuneration in nature due to the existence of clawback, vesting or service conditions, are not under the discretion of the Remuneration Committee but were determined in the share purchase agreement for the acquisition of the Investment Manager and approved by the shareholders of the Company at the Extraordinary General Meeting of the Company held on 27 October 2015.

All amounts of fees payable in shares are further analysed in Note 13 to the consolidated financial statements and are recorded at fair value as at the financial year end.

6.        Operating segments

The Group is organised into six business segments, against which the Group reports its segmental information, being "Office Assets", "Office Development Assets", "Residential Assets", "Industrial Assets", "Other Assets" (non-core assets) and "Central Assets and Costs". Segment analysis is based on the type of investment property with other assets containing non-core assets. Central Assets and Costs includes the Group head office assets and expenses.  All the Group's operations are in Dublin in the Republic of Ireland. Operating segments are reported in a manner consistent with the reporting to the Board of Directors of the Company which is the chief operating decision maker of the Group. No segments are aggregated.

Central assets include cash and cash equivalents, tax refundable and administration expenses paid in advance. In addition, cash received in advance in relation to rental receipts on properties and rental income accrued have been allocated from receivables and cash and cash equivalents to the appropriate segment.

The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses which comprises revenue (rental and service charge income, and other gains and losses such as development management fees), property outgoings, revaluation of investment properties and other gains and losses. Total income after revaluation gains and losses includes rental income which is used as the basis to report key measures such as EPRA Net Initial Yield ("NIY") and EPRA "Topped‑ Up" NIY, which measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiration of rent free period or other lease incentives respectively.

Group Consolidated Segment Analysis

For the financial year ended 31 March 2017

 



Office Assets

Office Development Assets

Residential Assets

Industrial Assets

Other Assets

Central Assets and Costs

Group Consolidated Position



€'000

€'000

€'000

€'000

€'000

€'000

€'000

Revenue


36,403 

2,930 

6,434 

562 

43 

                     -  

46,372 










Rental income


35,490 

33 

6,434 

562 

 -  

 -  

42,519 

Property outgoings


(1,243 )

(100 )

(1,194 )

(83 )

(218 )

 -  

(2,838 )

Total Property Income


34,247 

(67 )

5,240 

479 

(218 )

 -  

39,681 










Revaluation of investment properties


37,925 

61,941

2,902 

757 

                -  

                     -  

103,525 

Other gains and losses


 -  

2,805 

 -  

 -  

43 

(372 )

2,476 

Total Income


72,172 

64,679

8,142 

1,236 

(175 )

(372)

145,682 










Performance related payments


 -

(2,308 )

-

-

-

(5,907 )

(8,215)

Depreciation


-

-

-

-

-

(207)

(207)

Administration expenses


                    -  

                        -  

                   -  

                   -  

                -  

(12,563 )

(12,563 )

Total operating expenses


 -  

(2,308)  

 -  

 -  

 -  

(18,677 )

(20,985 )










Operating profit/(loss)


72,172 

62,371 

8,142 

1,236 

(175 )

(19,049 )

124,697 

Net finance cost


                    (2,145 )

                        (167)  

                   -  

                   -  

                -  

(3,349 )

(5,661 )

Profit before tax


70,027 

62,204

8,142 

1,236 

(175 )

(22,398 )

119,036 

Income tax


 -  

(342)  

 -  

 -  

(28 )

(80)  

(450 )

Profit for the financial year


70,027

61,862

8,142 

1,236 

(203 )

(22,478 )

118,586










Total Segment Assets


879,532 

168,215 

117,332 

13,168 

790 

30,595

1,209,632 










Investment Properties


869,748 

168,042 

116,429 

13,168 

 -  

 -  

1,167,387 

 

 

 

Group Consolidated Segment Analysis 

For the financial year ended 31 March 2016



Office Assets

Office Development Assets

Residential Assets

Industrial Assets

Other Assets

Central Assets and Costs

Group Consolidated Position



€'000

€'000

€'000

€'000

€'000

€'000

€'000

Revenue


27,176

81

4,835

524

170

-

32,786










Rental income


27,176 

81 

4,835 

524 

170 

                     -  

32,786 

Property outgoings


(716 )

(666 )

(1,029 )

(86 )

 -  

 -  

(2,497 )

Total Property Income

26,460 

(585 )

3,806 

438 

170 

 -  

30,289 

Revaluation of investment properties

59,589 

56,331 

7,168 

1,968 

                -  

                     -  

125,056 

Other gains and losses

(260 )

343 

 -  

 -  

2,136 

(2,390 )

(171 )

Total Income


85,789 

56,089 

10,974 

2,406 

2,306 

(2,390 )

155,174 










Performance related payments


 -

 -

(6,069 )

(6,069 )

Depreciation


-

-

-

-

-

(65)

(65)

Administration expenses


                    -  

                        -  

                   -  

                   -  

                -  

(8,631 )

(8,631 )

Total operating expenses

 -  

 -  

 -  

 -  

 -  

(14,765 )

(14,765 )










Operating profit/(loss)

85,789 

56,089 

10,974 

2,406 

2,306 

(17,155 )

140,409 

Net finance cost


                    (1,152)  

                        -  

                   -  

                   -  

                -  

(2,935 )

(4,087 )

Profit before tax


84,637 

56,089 

10,974 

2,406 

2,306 

(20,090 )

136,322 

Income tax


 -  

(38 )

 -  

 -  

513 

 -  

475 

Profit for the financial year

84,637 

56,051 

10,974 

2,406 

2,819 

(20,090 )

136,797 










Total Segment Assets

655,752 

155,930 

115,180 

12,400 

10,565 

38,794 

988,621 










Investment Properties

645,671 

155,014 

114,571 

12,400 

           -  

               -  

927,656 

 

 

7.        Total revenue

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Gross rental income


41,215 


26,520 

Rental incentives


1,304 


1,366 

Service charge income


1,048 


 -  

Windmill promote fee


2,511 


 -  

Surrender premia


 -  


4,900 

Other income


294 


-






Total Revenue


46,372 


32,786

Rental income arises from the Group's investment properties.

The Windmill promote fee relates to fees received from Starwood, earned through the achievement of certain performance targets, when the Company purchased Starwood's interest in the joint arrangement. These are payable, net of taxes and other costs due, in shares to the Vendors (Notes 5 and 13) and are included in performance related payments in the Consolidated Income Statement. Other income consists of development management fees, some of which are also payable (net of taxes) to the Vendors.

Subsequent to the surrender of the head lease in Two Dockland Central, €1.2m has been recognised in rental income in the financial year ended 31 March 2017 relating to top up payments for sub-leases (31 March 2016: €0.7m).

8.        Rental income

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Gross rental income


41,215 


26,520 

Rental incentives


1,304 


1,366 

Surrender premia


 -  


4,900 






Rental income


42,519 


32,786 

 

9.        Net property expenses

 



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Service charge income


(1,048 )


 -  

Service charge expense


1,205 


 -  

Other property expenses


2,681 


2,497 








2,838 


2,497 

 

During the financial year, the Group established a building management department: previously this service was provided by third party providers. Service charge income relates to contributions from tenants of managed buildings for the property expenses of the occupied buildings. Service charge expense includes building management staff costs and all other costs of managing the buildings. Building management fees are accounted for through the service charge income line along with the amounts invoiced to tenants. Other property expenses consist mainly of residential property costs and vacancy and other costs of commercial properties.

10.      Other gains and losses

 

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000

Gain on sale of investment property


 -  


176

Gains on sales of non-current assets classified as held for sale

43


2,136

Windmill promote fee


2,511


 -  

Other gains and losses


(78)


(2,483)






Other gains and losses


2,476


(171)

 

 

11.      Administration Expenses

Operating profit for the financial year has been stated after charging:

 



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Non-executive directors' fees


300


300

Professional valuers' fees


418


388

Prepaid remuneration expense


4,444


1,802

Pre-internalisation Investment Manager Costs


 -  


1,240

Depository fees


296


310

Depreciation


207


65

"Top-up" internalisation expenses for financial year


1,101


304

Staff costs (Note 12)


2,760


983

Other administration expenses


3,244


3,304








12,770


8,696

All fees paid to non-executive directors are for services as directors. Non-executive directors receive no other benefits other than William Nowlan who also receives €50,000 per annum in consulting fees under terms agreed as part of the internalisation.

Prepaid remuneration expense relates to the recognition of payments to Vendors of the Investment Manager that are contingent on the continued provision of services to the Group over the period during which the Group benefits from those services and is further discussed in Note 5. "Top-up" internalisation expenses for the financial year are fees due to Vendors and reflect management fees that would have been due under the IMA on increases in NAV since 31 March 2016.

Professional valuers' fees are paid to CBRE Ireland in return for their services in providing independent valuations of the Group's properties on an at least twice yearly basis. Professional valuers fees are charged at 0.019% of the portfolio value for each of the interim and final year end valuations. This is agreed in advance on each valuation exercise through a letter of engagement. CBRE Ireland, a private unlimited company, is part of a worldwide group where fee revenues from valuation and appraisal services constitute a small amount of its total revenue.

Auditors' remuneration (excluding VAT)

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000

Audit of the Group and parent company financial statements


 

105  


 

85 

Audit of subsidiaries' financial statements


30


24

Review of half year report


16  


15 

Other assurance services


 7  


Tax advisory services


 -  


156 

Other non-audit services


 -  







Total


 158


295 

12.      Employment

The average monthly number of persons (including Executive Directors) directly employed during the financial year was 18 (31 March 2016 (from the date of internalisation):11).

 

Financial year ended 31 March 2017


Financial year ended 31 March 2016


 Number


 Number

At financial year end:




Building management services




Head Office Staff

4


 -

On-Site Staff

3


 -


7


-

Administration

16


13





Total employees

23


13

 

 

The staff costs for the above employees were:







 €'000

 

 €'000

Wage and salaries

 

2,974 

 

1,215 

Social insurance costs

 

251 

 

122 

Employee share based payment expense (Note 13)

 

443

 

455 

Pension costs - defined contribution plan

 

195 

 

101 

 





Total

 

3,863 

 

1,893 

 

Staff costs are allocated to the following expense headings:







 €'000

 

 €'000

Administration expenses

 

2,760 

 

983 

Net property expenses

 

217 

 

Performance related payments

 

886

 

910  

 

Total

 

 

3,863 

 

1,893 

 

No amount of salaries and other benefits is capitalised into investment properties.

The increase in salaries reflects a full year charge in 2017: the internalisation took place in November 2015 and therefore the Group had direct employees only from that date in the prior year.

13.      Share based payments

As at 31 March 2017 the Group had the following share based payment arrangements:

a.  Performance related payments

As part of the arrangements for the internalisation of the Investment Manager in 2015, it was agreed that any future performance fees and other payments due under the terms of the Investment Management Agreement ("IMA"), would be made in shares of the Company until the expiry of the agreement in November 2018. The calculation of these amounts is determined using the EPRA Net Asset Value of the Group at the financial year end and the investment property returns as determined by IPD and using calculation protocols as were set out in the Investment Management Agreement or as subsequently modified by shareholder agreement at an EGM on 26 October 2016.

These amounts are referenced to a share price of the average closing price of Hibernia shares on the Irish Stock Exchange for the 20 business days preceding the grant date in order to calculate the amount of shares that should be issued for any such award.

Once the NAV, including valuation of the investment properties, is determined, the amount of the award is fixed and the Directors have determined that the grant date for the share based payment is the date on which the calculation is fixed, i.e. 31 March each year.  The Directors have calculated the amount of fees that are payable under this arrangement for the financial year ended 31 March 2017 in preparing these consolidated financial statements and these are shown in the table below split between performance related payments, "top-up" internalisation expenses and employee share reserves. In addition, amounts fell due in December 2016 in relation to the achievement of return targets on the unwinding of the Windmill Lane joint arrangement which are also provided.

Shares issued relating to performance related payments to Vendors that remain obliged to perform future services for the Group are subject to lock-up provisions meaning they are restricted from being sold upon receipt, with one third of the shares being "unlocked" on each anniversary of issue date. All shares are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them.  The Directors considered the likelihood of the clawback provision being triggered on these shares, the difficulty in measuring this provision, and the likelihood that any discount to be applied would be material. They concluded that it was inappropriate to modify the fair value of the shares issued to reflect these restrictions and the shares issued would be valued without any discount to reflect these restrictions.

b.    Employee long term incentive plan

Awards may be granted to employees of the Group under a remuneration plan which includes both cash elements and share-based long term incentive payments (the "Performance Related Remuneration Scheme" or "PRR").  Until the expiry of the performance related payments referenced in part a) above in November 2018, the PRR will be funded principally by deductions of up to 15% from any Performance Fees included in this payment.  Shares awarded under the PRR, 50% of the total award or up to 7.5% of the performance related payments at a) above, are in the form of a contingent grant of Company shares which will issue at the time of vesting, which occurs on the third anniversary of the start of the year to which they relate.  The number of shares is calculated based on the average closing price for the 20 business days preceding the end of the period to which the award relates. These shares are recorded at fair value on the contingent grant date, i.e. the 31 March of the year to which they are earned. The charge recognised in the consolidated income statement for the period ended 31 March 2017 is €0.4m (31 March 2016: €0.5m).

Shares are forfeited should the person leave the Group prior to the vesting date unless subject to "good leaver" provisions. Any shares forfeited are transferable to the Vendors on the basis that these shares have been deducted from performance fees that would otherwise have been due to the Vendors. Therefore, there is no impact on fair value measurement in respect of these shares.

Share based payments made and provided during the financial year:

Financial year ended 31 March 2017

Shares issued during the period:

4,200,590 Ordinary Shares of €0.10 were issued during the period in settlement of performance related fees due at 31 March 2016. The number of shares is determined by reference to the contract price. The fair value at the grant date was €5.5m. These shares were issued on 16 August 2016 on which day the prior closing price was €1.36.


Contract price*

€'000


# Shares


Price on issue date €'000 (FV)


1.290




1.36

Settlement of performance fee due for 2016 financial year

5,418


4,200,590


5,712

*Contract price is average of 20 business days prior to grant date (under IMA)

 

Summary of share based payments outstanding as at 31 March 2017


Share price per contract1

Grant date

Payment €'000

Share price at grant date

Share price at financial year end

Estimated # of shares to be issued '000

Fair value at financial year end €'000

Balance of 2016 performance related payments - Employee portion

             1.290

31 March 2016

456 

1.302

        1.245

350 

436 

Windmill promote fee

             1.186

12 December 2016

2,308 

1.201

        1.245

1,946 

2,423 

"Top-up" internalisation expenses for financial year

             1.237

31 March 2017

1,101 

        1.245

        1.245

890 

1,108 

Performance related payments provided in period (Note 13.a)

             1.237

31 March 2017

5,464 

        1.245

        1.245

4,417 

5,500









Balance at end of financial year



9,329 



7,603 

9,467 

 

1The number of shares to be issued is calculated based on the average closing price for the 20 business days prior to the grant date


Financial year ended 31 March 2016

Shares issued during the period:

Under the terms of the internalisation of the investment manager, a part of the payment was made in shares of the Company. The issue price of €1.17605 per share was determined by reference to the average share price for twenty days prior to 1 April 2015. 10.9m shares were issued on 10 November 2015 when the price was €1.318. The fair value of these shares is set out below.

Shares issued in the transactions comprising "Internalisation" of the Investment Manager




Contract price € '000


# Shares


 Price at issue date € '000 (FV)





1.176




1.318











Total shares issued



         12,859


       10,933,826


         14,411


 

 

Share based payments outstanding as at 31 March 2016









Grant date

Payment €'000

Share price at grant date

Share price at financial year end

Estimated # of shares to be issued '000

Fair value at financial year end €'000

Due under performance related payments - vendors

31 March 2016

 

5,469 

1.302

1.302

 

4,200 

5,469 

Due under performance related payments - employees

31 March 2016

 

456 

1.302

1.302

 

350 

456 








Balance at end of financial year


5,925 



4,550 

5,925 








 

14.      Finance income and expense

The effective interest expense on borrowings arises as a result of the recognition of interest expenses, commitment fees and arrangement fees

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Interest income on cash and cash equivalents


10 


153 

Effective interest expense on borrowings


(5,671 )


(2,822 )

Finance expense on payable due for investment property


 -  


(1,418 )








(5,661 )


(4,087 )

 

Interest costs capitalised in the financial year were €0.9m (31 March 2016: €0.1m) in relation to the Group's development and refurbishment projects. The capitalisation rate used is the effective interest rate on the cost of borrowing applied to the portion of investment that is financed by the relevant facility.

 

15.      Income tax expense

 



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Income tax on residual income


342  


30

Tax on the disposal of non-core assets


28  


186

Under/(over) provision in respect of prior periods


 80  


(691) 






Income tax expense / (credit) for financial year


 450 


(475 )

 

The net income tax charge on residual income in the financial year arises mainly from the receipt of promote and development management fees on the Windmill Lane project. The tax credit during the prior financial year arose mainly in respect of over provisions in prior periods.

Reconciliation of income tax expense for the financial year

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Profit/(loss) before tax


119,037


136,322 






Tax charge on profit at standard rate of 12.5%


14,880


17,040 

Non-taxable revaluation surplus


(13,016)  


(15,632 )

REIT tax-exempt rental profit


(1,502)  


(1,408 )

Other (Additional tax rate on Non-Core)


8


-

Under/(over) provision in respect of prior periods


 80


(475 )






Income tax expense /(credit) for financial year


450


(475 )

 

Hibernia REIT plc has elected for Real Estate Investment Trust ("REIT") status under section 705E Tax Consolidation Act 1997. As a result, the Group does not pay Irish corporation tax on the profits and gains from its qualifying rental business in Ireland provided it meets certain conditions. With certain exceptions, corporation tax is still payable in the normal way in respect of income and gains from the Group's Residual Business that is, its non-property rental business.

The Directors confirm that the Group has remained in compliance with the Irish REIT rules and regulations up to and including the date of this report.

16.      Dividends

 

 Financial year ended 31 March 2017


 Financial year ended 31 March 2016


 €'000


 €'000

Interim dividend for the financial year ended 31 March 2017 of 0.75 cent per share (31 March 2016: 0.7 cent per share)

5,141


4,769









Proposed final dividend for the financial year ended 31 March 2017 of 1.45 cent per share (31 March 2016: 0.8 cent per share)

10,050


5,486

 

The Board has proposed a final dividend of 1.45 cent per share (31 March 2016: 0.8 cent) which is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as a liability in these consolidated financial statements. This dividend is expected to be paid to shareholders on 31 July 2017. All of this proposed final dividend of 1.45 cent per share will be a Property Income Distribution ("PID") in respect of the Group's tax exempt property rental business (31 March 2016: 0.8 cent). The total dividend, interim paid and final proposed for the financial year ended 31 March 2017 is 2.2 cent per share (31 March 2016: 1.5 cent per share) or €15.2m (31 March 2016: €10.3m).

17.      Earnings per Share

There are no convertible instruments, options, warrants on ordinary shares in issue as at the financial year ended 31 March 2017. However, the Company has established a reserve of €9.5m (31 March 2016: €5.9m) against the issue of ordinary shares relating to the payment of performance related amounts due under the performance related payment element of the Share Purchase Agreement relating to the internalisation of the Investment Manager (Notes 5 and 13). It is estimated that approximately 7.6m ordinary shares (31 March 2016: 4.6m shares) will be issued and the details of these amounts are set out in Note 13. The dilutive effect of these shares is disclosed below.

 

The calculations are as follows:

Weighted average number of shares


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 '000


 '000

Issued share capital at beginning of financial year


681,251 


670,317 

Shares issued during the financial year


4,201 


10,934 






Shares in issue at end of financial year


685,452 


681,251 






Weighted average number of shares


683,351 


675,784 

Estimated additional shares due for issue for long term incentive plan/ performance fee (Note 13)

7,603 


4,550 

Diluted number of shares


690,954


680,334 

 

Basic and diluted earnings per share (IFRS)


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Profit for the financial year attributable to the owners of the Company 

118,586 


136,797 








 '000


 '000

Weighted average number of ordinary shares (basic)


683,351 


675,784 

Weighted average number of ordinary shares (diluted)


690,954 


680,334 






Basic earnings per share (cents)


            17.4


            20.2

Diluted earnings per share (cents)


            17.2


            20.1

 

EPRA earnings per share and Diluted EPRA earnings per share

Financial year ended 31 March 2017


Financial year ended 31 March 2016



€ '000


€ '000






Profit for the financial year attributable to the owners of the Company 

118,586


136,797 

Exclude:





Changes in fair value of investment properties


(103,525 )


(125,056 )

Profits or losses on the disposal of investment properties, development properties held for investment and other interests


 -  


(176 )

Profit or loss on disposals of non-core assets


(43 )


(2,136 )

Income tax on profit or loss on disposals


(30 )


(475 )

Fair value movement of derivatives



17 

Acquisition costs on share deals


 -  


1,053 






EPRA earnings


14,989 


10,024 








 '000


 '000






Weighted average number of ordinary shares (basic)


683,351 


675,784 

Weighted average number of ordinary shares (diluted)


690,954 


680,334 






EPRA earnings per share (cent)


                   2.2


                       1.5

Diluted EPRA earnings per share (cent)


                   2.2


                       1.5

 

18.      Property, plant and equipment

At 31 March 2017



Land and buildings


Office and computer equipment


Leasehold improvements and fixtures and fittings


Total



 €'000


 €'000


 €'000


 €'000










Carrying value at start of financial year


2,703 


32 


211 


2,946 










Additions:









Transferred from investment property at fair value


1,651 


 -  


 -  


1,651 

Acquisitions


 -  


51 


174 


225 

Depreciation


(67 )


(27 )


(113 )


(207 )

Revaluations included in other comprehensive income


186 


 -  


 -  


186 



















Carrying value at end of financial year


4,473 


56 


272 


4,801 

 

The Group now occupies 54% (31 March 2016: 32%) of the office space in its South Dock House property. This property was revalued as at 31 March 2017 and 31 March 2016 by the Group's valuers and in accordance with the valuation approach described under Note 2. (f).

At 31 March 2016



Land and buildings


Office and computer equipment


Leasehold improvements and fixtures and fittings


Total



 €'000


 €'000


 €'000


 €'000

Carrying Value at start of financial year


 -  


 -  


 -  


 -  

Additions:









Transferred from investment property at fair value


 

2,400 


 

 -  


 

 -  


 

2,400 

Acquired on acquisition of investment manager


 -  


37 


205 


242 

Acquisitions


-



38 


46 

Depreciation


(20 )


(13 )


(32 )


(65 )

Revaluations included in other comprehensive income


323 


 -  


 -  


323 










Carrying Value at end of financial year


2,703 


32 


211 


2,946 

 

19.      Investment Properties

At 31 March 2017



Office Assets

Office Development Assets

Residential Assets

Industrial Assets

Total

Fair value category


Level 3

Level 3

Level 3

Level 3

Level 3



 €'000

 €'000

 €'000

 €'000

 €'000

Carrying Value at start of financial year

647,042 

155,016 

113,200 

12,398 

927,656 

Additions:







Property Purchases

52,369 

32,981 

28 

 -  

85,378 

Development and Refurbishment Expenditure

7,413

44,754

299 

13 

52,479 

Revaluations included in income statement

37,925 

61,941 

2,902 

757 

103,525 

Disposals:







Transferred to property, plant and equipment as owner occupied

(1,651 )

 -  

 -  

 -  

(1,651 )

Properties transferred between segments1

126,650 

(126,650 )

 -  

 -  

 -  

Carrying Value at end of financial year

869,748 

168,042 

116,429 

13,168 

1,167,387 

1.     1 Cumberland Place development which was completed in September 2016.

 

At 31 March 2016



Office Assets

Office Development Assets

Residential Assets

Industrial Assets

Total

Fair value category


Level 3

Level 3

Level 3

Level 3

Level 3



 €'000

 €'000

 €'000

 €'000

 €'000

Carrying Value at start of financial year


475,877 

88,600 

66,500 

10,319 

641,296 

Additions:







Property Purchases


106,107 

 -  

30,129 

 -  

136,236 

Development and Refurbishment Expenditure


7,488 

19,960 

9,784 

111 

37,343 

Revaluations included in income statement


59,970 

56,331 

6,787 

1,968 

125,056 

Disposals:







Transferred to property, plant and equipment as owner occupied


(2,400 )

 -  

 -  

 -  

(2,400 )

Property sale


 -  

(9,875 )

 -  

 -  

(9,875 )








Carrying Value at end of financial year


647,042 

155,016 

113,200 

12,398 

927,656 

 

The valuations used to determine fair value for the investment properties in the consolidated financial statements are determined by CBRE, the Group's independent valuer, and are in accordance with the provisions of IFRS 13. CBRE has agreed to the use of their valuations for this purpose. Some of the inputs to the valuations are defined as "unobservable" by IFRS 13. As discussed in Note 2. (f) of this report, property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer. For these reasons, and consistent with EPRA's guidance, the Group has classified the valuations of its property portfolio as Level 3 as defined by IFRS 7. Valuations are completed on the Group's investment property on at least a half yearly basis and, in accordance with the RICS Valuation - Professional Standards, global January 2014 including the International Valuation Standards and the RICS Valuation - Professional Standards UK January 2014 (revised April 2015) ("the Red Book"). This takes account of the properties' highest and best use.  Where the highest and best use is not the current use, the valuation will account for the costs and likelihood of achieving this use in arriving at a valuation estimate for that property. In the period to 31 March 2017, for most properties the highest and best use is the current use except as discussed in Note 2.(f).  In these instances the Group may need to achieve vacant possession before re-development or refurbishment may take place and the valuation of the property takes account of any remaining occupancy period on existing leases. The table below summaries the approach for each investment property segment and highlights properties where the approach has been varied.

The method that is applied for fair value measurements categorised within Level 3 of the fair value hierarchy is the yield methodology using market rental values capitalised with a market capitalisation rate or yield or other applicable valuation technique. Using this approach for the Group's investment properties, values of investment properties are arrived at by discounting forecasted net cashflows at market derived capitalisation rates. This approach includes future estimated costs associated with refurbishment or development, together with the impact of rental incentives allowed to tenants. Therefore, for example, development properties are assessed using a residual method in which the completed development property is valued using income and yield assumptions and deductions are made for the estimated costs to completion, including finance costs and developers' profit, to arrive at the current valuation estimate. In effect this values the development as a proportion of the completed property.

 



 

The following table illustrates the methods applied to each segment:

 

Description of investment property asset class

Fair value of the investment property

€ 'm at the financial year end

 

Narrative description of the techniques used

Whether or not there was a change in the technique during the financial year

Office assets

870

Yield methodology using market rental values capitalised with a market capitalisation rate.

 

Surplus lands at Harcourt Square were assessed using the residual method (see below method) and the present value of this was added to the investment value of the rear blocks.

 

No change in valuation technique. 1 Cumberland Place, which was an office development asset at the previous financial year end is now part of this segment and valued on this basis as the development is completed. Harcourt Square was valued on a residual basis at 31 March 2016.

Office development assets

168

Residual method i.e.  "Gross Development Value" less "Total Development Cost" less "Profit" equals "Fair Value"  

* Gross Development Value ("GDV"): the fair value of the completed proposed development (arrived at by capitalising the ERV with an appropriate yield).

* Total Development Cost("TDC"): These include, but are not limited to, construction costs, land acquisition costs, professional fees, levies, marketing costs and finance costs.

* Profit or "Profit on Cost": This is measured as a percentage of the total development costs (including the site value).

 

For developments, close to completion the yield methodology is applied.

 

No change valuation technique. The office element at 1 Windmill Lane, which is nearing completion has been valued using yield methodology using market rental values capitalised with a market capitalisation rate, from which remaining capital expenditure has been deducted.

Residential assets

116

Yield methodology using market rental values capitalised with a market capitalisation rate. In the case of Cannon Place, where the highest and best use is different from the current use, the asset is now valued on an individual apartment basis which is the highest and best use for this building.

No change in valuation basis apart from Canon Place which was previously valued under yield methodology.

Industrial assets

13

Yield methodology using market rental values capitalised with a market capitalisation rate.

No change in valuation technique.

 

In valuing the Group's investment properties, the Directors have applied a reduction of €4.1m (31 March 2016: €2.6m) to the Valuer's valuations to factor in the impact of the accounting policy on the recognition of rental incentives allowed to tenants. This deduction is a measure of the impact on the property valuation of the difference between cash and accounting approaches to the recognition of rental income.

There were no transfers between fair value levels during the period. Approximately €0.9m of financing costs were capitalised in relation to the Group's developments and refurbishments (31 March 2016: €0.1m).

Reconciliation of the independent valuer's valuation report amount to the carrying value of investment property in the Consolidated Statement of Financial Position:


Financial year ended 31 March 2017


Financial year ended 31 March 2016


€'000


€'000





Valuation per Valuer's certificate

1,175,926 


953,830 





50% Windmill joint arrangement

 -  


(20,875 )

Owner occupied (Note 18)

(4,473 )


(2,703 )

Rental incentives adjustment1

(4,066 )


(2,596 )





Investment property balance at financial year end

1,167,387 


927,656 

1Rental incentives adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cashflow based approach while incentives given to tenants under lease arrangements are recognised as an integral part of the net consideration agreed for the use of the leased asset and the aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term.

Information about fair value measurements using unobservable inputs (Level 3).

The valuation techniques used in determining the fair value for each of the categories of assets is market value as defined by VPS4 of the Red Book 2014, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, and is in accordance with IFRS 13. Included in the inputs for the valuations above are future development costs where applicable. These development costs are generally determined by tender at the outset of the project and are neither unobservable nor subject to material change.

As outlined above, the main inputs in using a market based capitalisation approach are the ERV and equivalent yields. ERVs, apart from in multi-family residential properties as discussed below, are not generally directly observable and therefore classified as Level 3. Yields depend on the valuers assessment of market capitalisation rates and are therefore Level 3 inputs.

The table below summarises the key unobservable inputs used in the valuation of the Group's investment properties at 31 March 2017. There are interrelationships between these inputs as they are both determined by market conditions, and the valuation result in any one period depends on the balance between them. The Group's residential properties are multi-family units and therefore ERVs are based on current market rents observed for units rented within the property. ERV is included in the below table for completeness.

Key unobservable inputs used in the valuation of the Group's investment properties

31 March 2017







Market Value

 Estimated rental value € per sq. ft. 

Equivalent Yield %


€ '000

 Low

 High 

Low

High







Office

869,748

€26.00psf

 €55.00psf

4.89%

6.57%







Office development

168,042 

€50.00 psf

€55.00 psf

4.90%

5.60%







Residential *

116,429 

€19,800 pa

€ 22,800 pa

4.60%

4.60%







Industrial

13,168 

€2.26 psf

€5.75 psf

6.50%

6.50%













* Average ERV per 2 bed apartment





31 March 2016







Market Value

 Estimated rental value € per sq. ft. 

Equivalent Yield %


€ '000

 Low

 High 

Low

High







Office

647,042 

€23.55 psf

 €55.00 psf

4.87%

6.24%







Office development

155,016 

€47.00 psf

€55.00 psf

5.25%

5.50%







Residential *

113,200 

€18,000 pa

€ 26,400 pa

4.40%

4.60%







Industrial

12,398 

€3.75 psf

€5.75 psf

7.36%

7.36%



















* Average ERV per 2 bed apartment





 

The sensitivities below illustrate the impact of movements in key unobservable inputs on the fair value of investment properties. To calculate these impacts only the movement in one unobservable input is changed as if there is no impact on the other. In reality there may be some impact on yields from an ERV shift and vice versa. However, this gives an assessment of the maximum impact of shifts in each variable. If rents in the market are assumed to move 5% from those estimated at 31 March 2017, the Group's investment property portfolio would increase or decrease in value approximately €57m (31 March 2016: €51m). A 25bp increase in equivalent yields would decrease the value of the portfolio by €62m (31 March 2016: €54m) and a 25bp decrease results in an increase in value of €68m (31 March 2016: €60m). 

31 March 2017




 

Sensitivities

Impact on market value of a 5% change in the estimated rental value

Impact on market value of 
a 25bp change in the 
equivalent
yield


Increase € 'm

Decrease €'m

Increase € 'm

Decrease €'m

 






 

Office

39.5

(39.4)

(44.2)

48.6

 






 

Office development

12.0

(12.0)

(11.3)

12.5

 






 

Residential

4.9

(4.9)

(5.7)

6.3

 






 

Industrial

0.5

(0.5)

(0.4)

0.4

 






 

Total

56.9

(56.8)

(61.6)

67.8

 






 






 






 





 

31 March 2016 





 

Sensitivities

Impact on market value of a 5% change in the estimated rental value

Impact on market value of a 25bp change in the equivalent yield


Increase € 'm

Decrease €'m

Increase € 'm

Decrease €'m

 






 

Office

29.7

(29.5)

(34.9)

38.4

 






 

Office development

14.2

(14.2)

(12.9)

14.2

 






 

Residential

6.6

(6.6)

(5.9)

6.6

 






 

Industrial

0.5

(0.5)

(0.4)

0.4

 






 

Total

51.0

(50.8)

(54.1)

59.6

 






 






 



 

20.      Joint arrangement

As part of the purchase of 100% ownership of the Windmill Lane property, the Group acquired 100% of the Windmill Lane Development Company Limited by the acquisition of the 50% interest held by its partner, Starwood Capital Group LP, at the fair value of the net assets in December 2016. As a result, the Group had no joint arrangements in place at 31 March 2017.

At 31 March 2016 the following joint arrangement was in place:

Windmill Lane Partnership

Nature of activity: Development of the Windmill Lane site 

Principal place of business: South Dock House, Hanover Quay, Dublin D02 XW94

Name

Registered address/ Country of Incorporation

Group relationship

Directors

Company Secretary

Nature of business

Windmill Lane Development Company Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

50% held through Hibernia REIT Holding Company Limited

Richard Ball, Kevin Nowlan, Sarah Broughton, Thomas Tolley

Castlewood Corporate Services Limited

Property development

 

21.      Other financial assets

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000

Derivatives at fair value


115 


213 

Loans carried at amortised cost


152 


152 

Balance at end of financial year - current


267 


365 

Derivatives at fair value are the Group's hedging instruments on its borrowings.  The Group has hedged up to €100m of its revolving credit facility (31 March 2016: €100m) by a combination of caps and swaptions to limit the EURIBOR interest rate element of interest payable to 1%. A similar arrangement is in place on the Windmill Lane debt facility. Further details on the Group's accounting policy on derivatives can be found in note 4. (j) and on its borrowings in Note 27.  The derivatives covering the revolving credit facility have a nominal value of €100m in total. The Windmill Lane cap has a maximum nominal value of €44m based on a schedule of estimated drawings.

22.      Trade and other receivables

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000

Non-current





Prepaid remuneration (Note 1)


2,679


7,124

Property income receivables


4,066


4,542

Other receivables


1,791


 -  

Balance at end of financial year - non-current


8,536


11,666

Current





Investment property prepaid


 -  


326

Due from sale of non-current assets classified as held for sale

 -  


5,955

Prepaid remuneration (Note 1)


4,444


4,444

Receivable from loan redemptions


137


137

Property income receivables


4,538


2,807

Prepayments


789


1,253

Tenant fit-out


 -  


2,861

Corporation tax refund due


128


427

VAT refundable


72


670

Balance at end of financial year - current


10,108


18,880






Balance at end of financial year - total


18,644


30,546

 

Note 1: This consists of the balance of the payment to service providers relating to the internalisation transaction (Note 5).

There are no amounts past due. The Directors consider that the carrying value of trade and other receivables approximates to their fair value. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (Note 31).

23.      Non-current assets classified as held for sale

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



€'000


€'000

Balance at beginning of financial year


3,921 


18,499 

Recognised during the year


 -  


 -  

Acquisition costs


 -  


 -  

Sold during the year


(3,536) 


(14,578 )






Balance at end of financial year


385 


3,921 

Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. The Directors have assessed the fair value of these assets by reviewing the sales prices achieved on similar assets and the expected sales price as determined by the selling agent in preparing their disposal plans. Assets sold to date (since being acquired in 2014) have achieved at least their acquisition price on an individual basis and in total a profit of approximately €5.0m (31 March 2016: €4.8m) before tax and after costs has been achieved. The Directors have therefore concluded that the fair value of these assets is at least their carrying value. 

24.      Issued capital and share premium


31 March 2017

31 March 2016

 


Share Capital


Share Premium


Total

Share Capital


Share Premium


Total


€'000


€'000


€'000

€'000


€'000


€'000

Balance at beginning of financial year

68,125 


604,273 


672,398 

67,032 


590,955 


657,987 

Shares issued during the financial year (Note 1)

420 


5,292 


5,712 

1,093 


13,318 


14,411 












Balance at end of financial year

68,545 


609,565 


678,110 

68,125 


604,273 


672,398 

 

Note 1: Shares issued during the financial year as follows:

31 March 2017


At 31 March 2016

€'000


# Shares


Price on issue date €'000


1.302




1.360

Settlement of performance fee due for 2016 financial year

5,469


4,200,590


5,712

 

4,200,590 Ordinary Shares with a nominal value of €0.10 were issued during the period in settlement of performance related fees at a fair value of €1.302 on 31 March 2016, the grant date, giving a total recorded of €5.5m in settlement of fees due.

All of these shares were issued on 16 August 2016 and the associated costs were €19k.

Authorised share capital


31 March 2017


 31 March 2016



No of shares '000


No of shares '000






Authorised


1,000,000


1,000,000






In issue at period end


685,452 


681,251

 

31 March 2016


Contract price €


# Shares


Price on issue date €


1.17605




1.31800

Business acquisition

      1,174,625


         998,788


     1,316,402

Settlement of performance fee due for 2015 financial year

      4,580,443


     3,894,769


     5,133,305

Prepaid remuneration

      7,103,659


     6,040,269


     7,961,075







Total shares issued (10 November 2015)

   12,858,727


   10,933,826


   14,410,782

 

All of these shares were issued on 10 November 2015 and the associated costs were €11,000.

 

Share capital


31 March 2017


31 March 2016



No of shares '000


No of shares '000






Authorised


1,000,000


1,000,000






Allotted, called up and fully paid


685,452


681,251






In issue at end of financial year

685,452


681,251

 

Under the terms of the agreement under which the Group internalised the Investment Manager, the Vendors are entitled to certain deferred contingent payments which are, for the most part, equivalent to the performance fees which would have been due under the Investment Management Agreement. These and other share based payments due at 31 March 2017 amounted to €9.5m at the financial year end (31 March 2016: €5.9m) and are all payable in shares (Note 13). A further 7.6m shares are expected to be issued in relation to these payments.

25.      Other reserves

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Property revaluation


509 


323 

Cash flow hedging


(217 )


(112 )

Share based payment reserve


9,467


5,925 






Balance at end of financial year


9,759


6,136 

 

a.   Properties revaluation reserve

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Balance at beginning of financial year


323 


 -  

Increase arising on revaluation of owner-occupied properties


186 


323 






Balance at end of financial year


509 


323 

 

54% (31 March 2016: 32%) of the Group's property, South Dock House, has been derecognised as an investment property and recognised as an owner-occupied property. Subsequent remeasurement to fair value of this property is made through other comprehensive income or loss. On disposal, that portion of the properties revaluation reserve relating to the premises sold is transferred directly to retained earnings.  

b.   Cash flow hedging reserve

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Balance at beginning of financial year


(112 )


 -  

(Loss) arising on fair value of hedging instruments entered into for cash flow hedges


(105 )


(112 )






Balance at end of financial year


(217 )


(112 )

 

The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges.  The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss consistent with the Group's accounting policy. 

No income tax arises on this item.

Cumulative gains or losses arising on changes in fair value of hedging instruments that have been tested as ineffective and reclassified from equity into profit or loss during the financial year are included in the following line items:



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Finance expense



17

 

c.   Share based payment reserve

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Balance at beginning of financial year


5,925 


5,772 

Performance related payments in financial year


8,874 


5,869 

Settlement of performance related payments


(5,469)


(5,772)  

Fair value adjustment


137 


56 






Balance at end of financial year


9,467 


5,925 

 

Other reserves comprise represented amounts reserved for the issue of shares in respect of performance related and other payments. These are discussed further in Note 13.

26.      Retained earnings and dividends on equity instruments

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Balance at beginning of financial year


218,040 


89,375 

Profit for the financial year


118,586


136,797 

Share issuance costs


(19 )


(11 )

Dividends paid


(10,624 )


(8,121 )






Balance at end of financial year


325,983 


218,040 

In August 2016, a dividend of 0.8 cent per share (total dividend €5.5m) was paid to the holders of fully paid ordinary shares.

In January 2017 a dividend of 0.75 cent per share (total dividend €5.1m) was paid to the holders of fully paid ordinary shares.

The Directors propose a final dividend of 1.45 cent per share to be paid to shareholders on 31 July 2017. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these consolidated financial statements. The total estimated final dividend to be paid is €10.1m.

27.      Financial liabilities

 



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Balance at beginning of financial year


72,724 


 -  

Bank finance drawn during the financial year


97,877 


75,529 

Arrangement fees and other costs



(3,718 )

Interest payable


537


913 






Balance at end of financial year


171,138 


72,724 

The maturity of non-current borrowings is as follows:




  

Less than 1 year


192 


(119 )

Between 2 and 5 years


170,946


72,843 

Over 5 years


 -  


 -  






Total


171,138 


72,724 

 

The Group has a €400m revolving credit facility ("RCF") with Bank of Ireland, Barclays Bank plc and Ulster Bank Limited which has a five-year term to November 2020. The RCF is secured against a corporate debenture. Where debt is drawn to finance the Group's developments, the interest cost of this debt is capitalised.

The group also has a facility of €44.2m to fund the development works at 1 Windmill Lane.  The Group's exposure to this facility was 50% until the acquisition of 100% of the joint operation in December 2016. As part of the purchase consideration of the Starwood portion of the Windmill joint operation, the Group assumed €4.7m of the drawn facility and now has full exposure to the €44.2m facility. The Group intends to repay this facility in early 2018 and also intends to use the RCF to finance the remaining development expenditure at 1 Windmill Lane.

Where applicable, financing costs relating to these facilities are capitalised into development costs. All costs related to financing arrangements are amortised into the effective interest rate.  

The Directors confirm that all covenants have been complied with and are kept under review.

All borrowings are denominated in Euro. All borrowings are subject to 6 months or less interest rate changes and contractual re-pricing rates. In addition, the Group has entered into derivative instruments so that the majority of its EURIBOR exposure is capped at 1% in accordance with the Group's hedging policy (Note 31).

28.      Trade and other payables

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000






Current





Investment property costs payable


10,083 


9,130 

Rent prepaid


8,589 


3,573  

Rent deposits and other amounts due to tenants


2,269 


1,978

Deferred revenue


1,067 


 -  

Trade and other payables


2,496 


4,323 

PAYE/PRSI payable


138 


103 

Tax payable


 -  


216 






Balance at end of financial year - current


24,642 


19,323 

Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of the of trade and other payables approximates to their fair value.

29.      IFRS and EPRA Net Asset Value per Share

 



Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000

IFRS net assets at end of financial year


1,013,852


896,574






Ordinary shares in issue


685,452


681,251






IFRS NAV per share (cents)


147.9


131.6

Ordinary shares in issue


685,452


681,251

Estimated additional shares for performance related payments

7,603


4,550

Diluted number of shares


693,055


685,801






Diluted IFRS NAV per share (cents)


146.3 


130.7 








Financial year ended 31 March 2017


Financial year ended 31 March 2016



 €'000


 €'000

IFRS net assets at end of financial year


1,013,852


896,574

Net mark to market on financial assets


117


129

Revaluation of non-current assets classified as held for sale


 -  


457

EPRA NAV


1,013,969


897,160






Diluted number of shares


693,055


685,801






EPRA NAV per share (cents)


146.3 


130.8 

The Company has established a reserve of €9.5m (31 March 2016: €5.9m) against the issue of 7.6m ordinary shares relating to shares due to issue for payments due to the Vendors of the Investment Manager and employees as detailed in Note 13.

30.      Cash flow statement

Purchase of investment property



Financial year ended 31 March 2017


Financial year ended 31 March 2016


Note

 €'000


 €'000






Property purchases

19

85,378 


136,236 

Development and refurbishment expenditure

19

52,479 


37,343 

Change in prepayment for investment property


296 


326 






Payable for investment property


 -  


42,697 

Change in investment property costs payable

28

(953 )


(8,443 )






Cash paid for investment property


137,200 


208,159 

 

31.      Financial Instruments and risk management

a.   Financial risk management objectives and policy

The Group takes calculated risks to realise strategic goals and this exposes the Group to a variety of financial risks. These include, but are not limited to, market risk (including interest and price risk), liquidity risks and credit risk. These financial risks are managed in an overall risk framework by the Board, in particular by the Chief Financial Officer, and monitored and reported on by the Risk and Compliance Officer. The Group monitors market conditions with a view to minimising the volatility of the funding costs of the Group. The Group uses derivative financial instruments such as interest rate caps and swaptions to manage some of the financial risks associated with the underlying business activities of the Group.

b.   Financial assets and financial liabilities

The following table shows the Group's financial assets and liabilities and the methods used to calculate fair value.

Asset/ Liability

Carrying value

Level

Fair value calculation technique

Assumptions

Cash and cash equivalents

Amortised cost

1

Cash Value

The fair value of cash and cash equivalents held at amortised cost have been calculated by discounting the expected cash flows at prevailing interest rates.

 

Loan and receivables

Amortised cost

3

Assessed in relation to collateral value

Valuation of collateral is subjective based on agents guide sales prices and market observation of similar property sales were available.

Trade and other receivables

2

Cash settlement value

Most of these are receivables in relation to prepayments and they are expected to be recoverable in the short term. No discounting is therefore applied.

Financial liabilities

Amortised cost

2

Discounted cashflow

The fair value of financial liabilities held at amortised cost have been calculated by discounting the expected cash flows at prevailing interest rates.

 

Derivative financial instruments

Fair value

2

Calculated fair value price

The fair value of derivative financial instruments is calculated using pricing based on observable inputs from financial markets.

Trade and other payables

Amortised cost

2

Cash settlement value

We have assessed these items and have determined that they are either deferred income or accruals or are creditors that will settle in the short term based on their cash value and therefore no discounting is applied.

 

The carrying value of non-interest bearing financial assets and financial liabilities and cash and cash equivalents approximates their fair values, largely due to their short-term maturities. 

c.   Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;

Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data.

The following tables present the classification of financial assets and liabilities within the fair value hierarchy and the changes in fair values measurements at Level 3 estimated for the purposes of making the above disclosure. 



As at 31 March 2017





Fair value hierarchy

Loans and receivables

At Fair value

At amortised cost

Carrying value

Fair value



€'000

€'000

€'000

€'000

€'000

Trade and other receivables

2

18,644 

 -  

 -  

18,644 

18,644 

Loans

3

152 

 -  

 -  

152 

152 

Derivatives at fair value

2

 -  

115 

 -  

115 

115 

Cash and cash equivalents

1

18,148 

 -  

 -  

18,148 

18,148 

Financial liabilities

2

 -  

 -  

(171,138 )

(171,138 )

(171,138 )

Trade and other payables

2

 -  

 -  

(24,642 )

(24,642 )

(24,642 )



36,944 

115 

(195,780 )

(158,721)

(158,721 )










As at 31 March 2016





Fair value hierarchy

Loans and receivables

At Fair value

At amortised cost

Carrying value

Fair value



€'000

€'000

€'000

€'000

€'000

Trade and other receivables

2

30,546 

 -  

 -  

30,546 

30,546 

Loans

3

152 

 -  

 -  

152 

152 

Derivatives at fair value

2

 -  

213 

 -  

213 

213 

Cash and cash equivalents

1

23,187 

 -  

 -  

23,187 

23,187 

Financial liabilities

2

 -  

 -  

(72,724 )

(72,724 )

(72,724 )

Trade and other payables

2

 -  

 -  

(19,323 )

(19,323 )

(19,323 )



53,885 

213 

(92,047 )

(37,949 )

(37,949 )

 

 



 

Movements of level 3 fair values

This reconciliation includes investment property which is described further in Note 19 to these consolidated financial statements.

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



€'000


€'000






Balance at beginning of financial year

927,808 


631,248 

Transfers out of level 31

 

(1,651 )


(2,400 )

Purchases, sales, issues and settlement





Purchases2


137,857 


173,579 

Sales


 -  


(9,875 )

Written call option3

 

 -  


5,100 

Fair value movement


103,525 


130,156 






Balance at end of financial year


1,167,539 


927,808 

1Owner occupied property

2Includes development and refurbishment expenditure

3Starwood option to acquire its 50% interest in the Windmill Lane development was exercised in 2016

 

d.   Risk management

The Group has identified exposure to the following risks:

Market risk

Credit risk

Liquidity risk

 

The policies for managing each of these and the principal effects of these policies on the results for the financial year are summarised below:

i.    Market risk

Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group has no financial assets or liabilities denominated in foreign currencies. The Group's financial assets currently principally comprise mainly short term bank deposits and trade receivables. Financial liabilities comprise short term payables and bank borrowings. Therefore the primary market risk is interest rate risk. Bank borrowing interest rates are based on short term variable interest rates and the Group has partly hedged against increasing rates by entering into interest rate caps to restrict EURIBOR interest costs to 1%.

Exposure to interest rates is limited to the exposure of its earnings from uninvested funds and borrowings. There were no uninvested funds from the Company's capital raises at this or the previous financial year-end. Borrowings were €173.4m (31 March 2016: €75.6m). While Interest rates remain at historic lows, the hedging strategy means there is minimal impact on earnings of EURIBOR rate increases over 1%. The Group's drawings under its facilities were based on a EURBOR rate of 0% and therefore the impact of a rise in EURIBOR to 1% for a full year would be approximately €1.7m (31 March 2016:€0.8m).

ii.   Credit risk

Credit risk is the risk of loss of principal or loss of a financial reward stemming from a counterparty's failure to repay a loan or otherwise meet a contractual obligation. Credit risk is therefore, for the Group and Company, the risk that the counterparties underlying its assets default.

The Group's main financial asset is cash and cash equivalents. Cash and cash equivalents are held with major Irish and European institutions. The Board has established a cash management policy for these funds which it monitors regularly. This policy includes ratings restrictions, BB or better, and related investment thresholds, €25-50m with individual institutions dependent on rating, to avoid concentration risks with any one counterparty. The Company has also engaged the services of a Depository to ensure the security of the cash assets.

Concentration of risk in receivables:  €2.2m is due from a previous tenant in relation to scheduled lease break payments, none of which is past due. Other than this there are no concentrations of credit risk (31 March 2016: approximately €2.9m was due from tenants for fit-out works and €4.4m for surrender premia). The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments and tax refunds due.

The maximum amount of credit exposure is therefore:

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



€'000


€'000











Financial assets


267 


365 

Trade and other receivables


18,644 


30,546 

Cash and cash equivalents


18,148 


23,187 






Balance at end of financial year


37,059 


54,098 

 

iii.  Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient available funds to meet obligations as they fall due.

Net current assets at the financial year end were:

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



€'000


€'000

Net current assets at end of financial year

3,999


26,665

 

The following tables show total liabilities due as compared with funds available. No account is taken of trade and other receivables due, rent income due under operating leases, or other cash in-flows. Only trade payables relating to cash expenditure are included, the balances relate either to non-cash items or deferred income.

 


Financial year ended 31 March 2017


Financial year ended 31 March 2016



€'000


€'000

Trade and other payables


24,642 


19,323 

Financial liabilities


171,138 


72,724 






Total liabilities due


195,780 


92,047 

Funds available:





Cash and cash equivalents


18,148 


23,187 

Revolving credit facility undrawn


241,000 


325,000 






Total funds available


259,148 


348,187 

Net funds available


63,368 


256,140 

 

Listed below are the contractual maturities of the Group's financial liabilities. These include interest margins payable and contracted repayments. EURIBOR is assumed at 0%.

 

At 31 March 2017


Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

Non-derivatives








Borrowings


171,138 

183,267 

1,630 

2,345 

18,119 

161,173 

Trade payables


2,634

2,634 

2,634 

 -  

 -  

 -  

Payable for investment property

10,083 

10,083 

10,083 

 -  

 -  

 -  

Total


183,855 

195,984 

14,347 

2,345 

18,119 

161,173 

















At 31 March 2016


Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

Non-derivatives








Borrowings


76,155 

82,619 

626 

782 

1,563 

79,648 

Trade payables


4,642 

4,642 

4,426 

216 

 -  

 -  

Payable for investment property

9,130 

9,130 

9,130 

 -  

 -  

 -  

Total


89,927 

96,391 

14,182 

998 

1,563 

79,648 

 

e.   Capital management

The Group manages capital in order to ensure its continuance as a going concern.

The Group has a stated policy of not incurring debt above 40% of the market value of its property assets. Under the Irish REIT rules the ratio must remain under 50%.

Capital comprises share capital, reserves and retained earnings as disclosed in the Consolidated and Company Statement of Changes in Equity. At 31 March 2017 the total capital of the Company was €1,014m (31 March 2016: €897m).

Under the Irish REIT regime, the Group must distribute at least 85% of its property income by way of a Property Income Distribution ("PID"). Therefore, capital available for business growth will not be augmented by dividend policy. To grow the business, the Group must therefore consider the need to seek further capital in the market given both the inability to grow reserves and the restriction on its borrowings as a source of increasing its portfolio size as discussed above.

The Company's share capital is publicly traded on the London and Irish stock exchanges.

As the Company is authorised under the Alternative Investment Fund regulations it is required to maintain 25% of its fixed overheads as capital.  This is managed through the Company's risk management process. The limit was monitored throughout the financial year and no breaches occurred.

32.      Operating leases receivables

Future aggregate minimum rentals receivable (to the next break date) under non-cancellable operating leases are:



Financial year ended 31 March 2017


Financial year ended 31 March 2016



€'000


€'000

Operating lease receivables due in:





Less than one year


45,773 


30,592 

Between two and five years


137,766 


82,245 

Greater than five years


162,841 


80,808 








346,380 


193,645 

 

The Group leases its investment properties under operating leases. The weighted average unexpired lease term (WAULT) at 31 March 2017, excluding residential properties and weighted on contracted rents, based on the earlier of lease break or expiry date 6.7 years (31 March 2016: 5.6 years).

These calculations are based on all leases entered into at 31 March 2017, i.e. including pre-lets. The sizeable increase in receivables is mainly the result of new leases contracted in Cumberland Place and One Dockland Central, increases due to Harcourt Square lease renegotiations along with the addition of the Clanwilliam Court purchases.

33.      Investment in subsidiary undertakings

The Company has the following interests in ordinary shares in the following material subsidiary undertakings at 31 March 2017. These subsidiaries are fully owned and consolidated within the Group.

Name

Registered address/ Country of Incorporation

Shareholding/ Number of shares held

Directors

Company Secretary

Nature of business

Hibernia REIT Finance Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

100%/ 10

Richard Ball, Thomas Edwards-Moss, Kevin Nowlan, Frank O'Neill

Castlewood Corporate Services Limited

Financing activities

Hibernia REIT Holding Company Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

100%/ 1

 

Richard Ball, Kevin Nowlan, Frank O'Neill

Castlewood Corporate Services Limited

Holding property interests

Hibernia REIT Building Management Services Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

100%/ 1

 

Richard Ball, Kevin Nowlan, Frank O'Neill  

Castlewood Corporate Services Limited

Property management

 

WK Nowlan REIT Management Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

100%/300,000

 

Richard Ball, Thomas Edwards-Moss, Kevin Nowlan, Frank O'Neill

Castlewood Corporate Services Limited

Investment holding company

Nowlan Property Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

100%/100

Kevin Nowlan, William Nowlan, Frank O'Neill

Castlewood Corporate Services Limited

Holding company

Windmill Lane Development Company Limited

South Dock House, Hanover Quay, Dublin D02 XW94, Ireland

100%/100

Richard Ball, Kevin Nowlan

Castlewood Corporate Services Limited

Development and management of real estate

 

On 12 December 2016, the Group acquired a 50% interest in Windmill Lane Development Company Limited through its subsidiary, Hibernia REIT Holding Limited. This brought its total holding to 100%. This company manages the Windmill Lane development and was acquired in conjunction with of the acquisition of the 100% interest in this property. 50% of the fair value of the net assets of €100 were acquired for €50. The Group also established a subsidiary during the financial year, Hibernia REIT Building Management Services, to carry out property management services.

The Group has other subsidiary companies which are generally property management companies and are not considered material.

The Group has no interests in unconsolidated subsidiaries.

34.      Related Parties

a.         Subsidiaries

All transactions between the Company and its subsidiaries are eliminated on consolidation.

b.         Other related party transactions

WK Nowlan Property Limited, now trading as WK Nowlan Real Estate Advisors, has Directors in common with the Company. During the financial year WK Nowlan Real Estate Advisors was engaged on an arm's length basis to carry out project management, agency and due diligence services across the Group's property portfolios. The fees earned by WK Nowlan Real Estate Advisors for these services were benchmarked on normal commercial terms and totalled €0.8m for the financial year to 31 March 2017 (31 March 2016: €1.3m). An amount of €30k was owed to WK Nowlan Real Estate Advisors at the financial year end (31 March 2016: €100k).

In March 2016, the Group acquired Marine House and as a result became the landlord of WK Nowlan Real Estate Advisors who, in 2013, had agreed lease terms with the previous owner on normal commercial terms.

The Group received rent of €140k from WK Nowlan Real Estate Advisors during the financial year (31 March 2016: €6k).  No amounts were owed to the Group from WK Nowlan Real Estate Advisors at the financial year end.

William Nowlan is Chairman of WK Nowlan Real Estate Advisors. William Nowlan is a shareholder in WK Nowlan Real Estate Advisors along with Kevin Nowlan and Frank O'Neill.  As part of his consultancy agreement with the Company, William Nowlan is entitled to €50k in consulting fees for the financial year ended 31 March 2017 (31 March 2016: €50k). William Nowlan also receives a fee of €50k per annum in relation to his role as a non-executive director. An amount of €12.5k was owed to him at the financial year end as well as the performance related payments below.

As part of the performance related payments for the financial year (Note 5) the following payments are due:

Kevin Nowlan €3.2m, Frank Kenny €2.1m, William Nowlan €1.6m and Frank O'Neill €0.6m. (31 March 2016: Kevin Nowlan €2.0m, William Nowlan €1.0m, Frank Kenny €1.4m, Frank O'Neill €0.4m).

As part of his consultancy agreement with the Company, Frank Kenny is entitled to €200k in fees for the financial year ended 31 March 2017 (31 March 2016: €200k). These were paid in full during the financial year.

Thomas Edwards-Moss rents an apartment from the Group at market rent and paid €17K in rent during the financial year (31 March 2016: €17k).

c.         Key management personnel

In addition to the executive and non-executive Directors, the following are the key management personnel of the Group:

Richard Ball                  Chief Investment Officer

Mark Pollard               Director of Development

Sean O'Dwyer             Risk and Compliance Officer and Company Secretary

Frank O'Neill               Chief Operations Officer

 

The remuneration of the directors (including non-executive) and the key management personnel during the financial year was as follows:


Financial year ended 31 March 2017