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Hibernia REIT PLC  -  HBRN   

Preliminary Results for the year to 31 March 2018

Released 07:00 24-May-2018

RNS Number : 1111P
Hibernia REIT PLC
24 May 2018
 

               Preliminary Results

For the financial year to 31 March 2018

 

24 May 2018

Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces its preliminary results for the financial year to 31 March 2018.  Highlights for the financial year:    

Strong financial performance despite stamp duty increase, outperforming Dublin market

·     Portfolio value of €1,308.7m, up 6.6%[1] in the year (developments up 18.3%1,[2])

·     12-month total property return[3],4 of 11.6% vs IPD Ireland Index of 6.8%

·     EPRA NAV[4] per share of 159.1 cent, up 8.7% in the year and 2.4% in H2 (7.4% excl. stamp duty change)

·     Net rental income of €45.7m, up 15.1% on prior year (March 2017: €39.7m)

·     Profit before tax of €107.1m including revaluation surplus (March 2017: €119.0m)

·     EPRA EPS4 of 2.8c, up 27.3% on prior year (March 2017: 2.2c)           


Disciplined and profitable recycling of capital, enhancing portfolio

·     Sale of three smaller assets for €35.8m, prices in aggregate 20.6% ahead of Sept 2017 carrying values

·     Acquisitions totalling €39.1m made, primarily

o 77 SJRQ: 34,000 sq. ft. office purchased and simultaneously let, driving immediate valuation gain

o Gateway: 31.3 acres adjacent to existing site purchased


Development programme delivering and pipeline projects progressing

·     Two schemes, 1WML and 2DC, completed in the year, delivering 197,000 sq. ft. of Grade A offices and profit on cost of >65% (at completion)

·     Three committed schemes totalling 222,000 sq. ft. Grade A offices now in progress

o 1SJRQ and 2WML (172,000 sq. ft.) both delivering by end of 2018, completing the Windmill Quarter

o Cumberland Place Phase II (50,000 sq. ft., H1 2020 completion) committed in May 2018

·     Progress made with longer-term pipeline of four schemes

o Preparing and optimising the three pipeline office schemes totalling 505,000 sq. ft. post completion

o Gateway Land holding now 45.4 acres, planning application made for new access road 


Income and WAULT of portfolio increasing due to new lettings and rent reviews

·     Annual contracted rent roll4 now €56.0m and "in-place" office portfolio WAULT to earlier of break / expiry now 7.3 years, up 15.9% and 9.0% in the year, respectively, driven by:

o €5.7m of new lettings in completed schemes with avg. term to earlier of break / expiry of 11.4 years

o €1.3m of rent reviews settled with an average uplift of 138%, in line with ERVs

·     Acquired "in-place"[5] CBD offices have avg. rents of €39psf, reversionary potential of 20.6% and an avg. period to earlier of rent review or expiry of 2.6 years


Financial strength to fund further investment

·     Net debt4 at 31 March 2018 of €202.7m, LTV4 of 15.5% (March 2017: €155.3m, LTV 13.3%)

·     Cash and undrawn facilities of €197.3m: €120.3m net of committed development spend


Dividend growing as income increases

·     Final dividend of 1.9 cent per share bringing total for year to 3.0 cent up 36.4% (2017: 2.2 cent)

·     Expect further growth from developments and capturing reversion via lease events / reviews

 


Kevin Nowlan, Chief Executive Officer of Hibernia, said:

"We are pleased to report another strong performance in the year.  Our portfolio returns significantly outperformed the Irish market, helped in particular by our office developments and our residential assets, and our growing rental income has enabled us to propose increasing the dividend for the year by 36%.  As guided, we recycled capital into assets which we believe will enhance our future portfolio returns and we expect to continue this process.

 "With the completion of 1WML our first cluster of office buildings, the Windmill Quarter, is taking shape.  When our developments at 1SJRQ and 2WML complete in the second half of 2018 this will total c. 400,000 sq. ft. of office space together with a gym, food and beverage and residential units across five adjacent buildings in the South Docks.  It enables us to provide shared working areas and communal facilities, most notably the Townhall, and is proving popular with tenants.

"Looking ahead, we continue to be optimistic and are today announcing the commencement of the Phase II development at Cumberland Place.  The supply of new offices in Dublin remains relatively constrained, particularly in the city centre market in which we specialise, and economic momentum in Ireland is strong, as is demand from domestic and international occupiers for office space in Dublin.  These same dynamics are also in evidence in the residential rental market.  We have a talented team, a portfolio rich in opportunity and flexible, low-cost funding available to support our plans."

 

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@murraygroup.ie      
Jill Farrelly: +353 87 738 6608, jfarrelly@murraygroup.ie     


About Hibernia REIT plc
    
Hibernia REIT plc is a Dublin-focused Real Estate Investment Trust ("REIT"), listed on Euronext Dublin and the London Stock Exchange, 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 9.00 am today: a conference call facility will be available to listen to the presentation live using the following details:  

Ireland Toll: +353-1436-0959 
Ireland Toll-Free: 1-800-930-488       

Participant code: Hibernia

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 excellent results despite the increase in stamp duty, with our developments and residential assets being particularly strong performers. Our portfolio delivered a total property return (excluding acquisition costs) of 11.6%, outperforming our benchmark, the IPD Ireland Index, which returned 6.8%.  EPRA NAV per share grew by 8.7% to 159.1 cent and we are proposing a 1.9 cent per share final dividend taking our total for the year to 3.0 cent, an increase of 36.4% over the prior year.

Growing Irish economy and favourable market conditions       
Ireland continues to have one of the best performing economies in the euro area and unemployment has fallen to near pre-crisis levels. This, together with continuing FDI, is resulting in strong occupier demand, particularly from the TMT sector. Dublin office take-up set a new record in 2017 and remained above trend in Q1 2018, taking the overall vacancy rate to 6.2% by March 2018.  The Grade A vacancy rate in Dublin's city centre, where c. 90% of Hibernia's portfolio is located was 3.9% at the same date.  While supply of new offices has grown year-on-year since 2015, it remains relatively constrained and prime rents have continued to increase.  With strong occupier demand, limited new supply and growing rents it has been unsurprising to see prime office yields compress and the same dynamics are in effect in the residential market.  The increase in stamp duty on commercial property in the year somewhat reduced the valuation gains from the yield compression and rental growth: on a like-for-like basis our office portfolio grew 4.3% in value (excl. current developments) and our residential portfolio (not subject to the stamp duty increase) grew 13.4%.

Enhancing portfolio through disciplined and profitable recycling of capital  
As guided, we made our first sales of investment properties in the year and invested the proceeds in new assets which we believe will improve the forward returns of the portfolio.  We sold three of our smaller assets in the second half of the financial year for €35.8m, an aggregate of 20.6% ahead of their September 2017 valuations.  In the case of the Chancery, D8, we had extended the unexpired lease term from two years at acquisition to eight years and saw little further asset management opportunities in the near and medium term.  In the case of the two neighbouring assets in the South Docks, Hanover Street East and 11a Lime Street, these were acquired with the objective of building a consolidated land holding to undertake a future redevelopment: the sales price gave Hibernia the majority of the upside it could have expected from any such redevelopment with no risk.

We made acquisitions totalling €39.1m in the year.  77 Sir John Rogerson's Quay, in the improving eastern end of the South Docks, was acquired vacant and we agreed a simultaneous long lease with International Workplace Group plc ("IWG") generating an immediate valuation uplift.  We also acquired 31.3 acres of agricultural land adjacent to our Gateway site, increasing our interest to 45.4 acres in an area with excellent transport links that we feel has significant future potential. 

Development programme delivering and making progress with pipeline of future schemes         
We successfully completed our committed schemes at 1WML and 2DC, delivering 197,000 sq. ft. of Grade A office space and some ancillary space and generating an aggregate profit on cost in excess of 65% at completion.  At 31 March 2018 over 96% of this space was let, with contracted rent of €11.5m.  1SJRQ and 2WML, our two committed developments at 31 March 2018, will deliver 172,000 sq. ft. of prime office space and remain on track for completion in late 2018.  They are the final parts of the Windmill Quarter, our first cluster of five adjacent buildings in the South Docks comprising c. 400,000 sq. ft. of offices plus further retail (food & beverage), leisure and residential units centred around the communal facilities we are putting into Windmill Lane, most notably the Townhall.  In May 2018, the Board approved the development of Phase II of Cumberland Place, which will deliver an additional 50,000 sq. ft. of new Grade A office space and which we expect to complete in the first half of 2020.

Following the approval of Cumberland Phase II, our longer-term development pipeline totals four schemes.  The three office schemes, two of which have the scale to create similar clusters of buildings with shared facilities to the Windmill Quarter, are expected to deliver 505,000 sq. ft. of office space post completion and we are working to optimise our plans for them.  At Gateway, our interest has been enhanced by the additional land we have acquired and we are assessing our options to enhance value.

Income and WAULT increasing and driving growing dividend 
Contracted rent grew by 15.9% to €56.0m per annum and our office WAULT to the earlier of break or expiry grew 9.0% to 7.3 years.  The key driver of this has been the lettings made at the two developments which completed in the year, 1WML and 2DC, which added €5.7m of contracted rent with WAULT to break of 11.4 years.  In addition, we successfully concluded four rent reviews, adding €0.7m to contracted rent, an uplift of 138% on existing rent and in line with ERVs. 

EPRA earnings grew 29.4% to €19.4m (2.8 cent per share) for the financial year as a result of this activity and the Board has proposed a final dividend of 1.9 cent per share, bringing the dividend for year to 3.0 cent, up 36.4% on prior year.  We see potential for further growth as our committed and near term developments, which are unlet at present and have an ERV of €12.7m, are leased up and as we capture the €6.0m of reversionary potential in our acquired "in-place" office portfolio, which has an average period to earlier of review or expiry of 2.6 years.

Moving towards target leverage but still substantial investment capacity    
We continue to make progress towards our through-cycle leverage target range of 20-30% LTV: net debt at 31 March 2018 was €202.7m, a loan to value ratio of 15.5% (March 2017: 13.3%).  The €47.4m increase in net debt in the year was primarily due to development expenditure, which totalled €43.9m, and there remains a further €77m of committed development expenditure, most of which will occur in the year to March 2019.  Net of this committed development spend we have cash and undrawn facilities of €120.3m available.  We are looking at options to diversify our sources of debt funding and extend average maturity dates.

Outlook
The supply of new offices in Dublin remains relatively constrained, particularly in the city centre market in which we specialise, and economic momentum in Ireland continues to be strong, as does demand from domestic and international occupiers for office space in Dublin.  These same dynamics are also in evidence in the residential rental market. We are positive on our prospects: we have a talented team, a portfolio rich in opportunity and flexible, low-cost funding available to support our plans.

 

Kevin Nowlan, Chief Executive Officer

Market Review        
General economy    
Ireland again had one of the best performing economies in the euro area in 2017, with GDP growth for the year forecast at 8.1%, as activity returned to pre-crisis levels (source: CSO, Goodbody).  The Department of Finance ("DoF") recently upgraded its forecasts for GDP growth in 2018 and 2019 to 5.6% and 4.0%, respectively (previously 3.5% and 3.2%).  Core domestic demand is forecast to grow by 2.8% in 2017 (source: Goodbody) and is expected to average 4.3% per annum for the next two years, supporting further GDP growth (source: Central Bank of Ireland).  The unemployment rate fell to 5.9% in April 2018, the first time in 10 years it has been below 6%, and the economy is nearing practical full employment, which is likely to create upward pressure on wages in the near term (source: Goodbody, CSO). 

Notwithstanding current and capital spending increases of 4% and 9%, respectively, the Government budget deficit reduced to 0.2% of GDP in 2017 (2016: 0.7% deficit) as tax revenues increased (source: Goodbody).  Ireland's improving fiscal health should help the execution of the Government's National Development Plan, an important programme of investment in Ireland's infrastructure network for the long term.

The uncertainty around the terms of the UK's departure from the EU and the impact of the recent US tax reforms remain the key external risks for the Irish economy.  To date there has been little discernible negative impact from either: an additional 4,700 IDA-sponsored jobs were added in Dublin in 2017 (3,300 in 2016) while 1,100 jobs were added in Q1 2018 (source: Davy, Goodbody).  Nonetheless, while the potential upside for Dublin from Brexit has been discussed previously, the longer-term implications of it and the US tax changes for Dublin remain less clear.

Irish property investment market    
In the 12 months to 31 March 2018 the MSCI Ireland Property Index (the "Index") delivered a total return of 6.8% (March 2017: 11.2%).  Over 97% of the Index by value comprises commercial property, which was negatively impacted by the trebling of stamp duty on commercial property transactions in Ireland from 2% to 6% which came into effect in October 2017.  Excluding the stamp duty change, the Index would have delivered capital growth of c.6% in the year to March 2018 rather than 2.1% (March 2017: 6.2%).  The office sector delivered a total return of 7.1% in the 12 months to March 2018 and capital growth of 2.6%.  This capital growth came from ERV growth and yield compression in broadly equal measure.

The immediate impact of the stamp duty increase was a reduction in the value of commercial property of around 4%.  However, it has been difficult to determine any notable impact on investment volumes: although the €2.6bn of commercial property transactions in Ireland in 2017 was lower than the €4.5bn of transactions in 2016 this decrease was expected as the market continued to move out of its deleveraging phase and Q4 2017 (i.e. after the change) saw 48% of all the investment volumes in the year. Q1 2018 volumes were relatively strong at c.€0.9bn, helped by the completion of three large transactions of over €100m each (source: CBRE).

Prime office yields compressed from 4.65% to 4.00% in 2017 and have remained stable in Q1 2018 (source: CBRE). Investor appetite for prime assets remains strong although the scarcity of product has led some investors to shift to the suburban market and forward-funding transactions are becoming more common (source: Knight Frank). In addition, appetite for alternative property classes such as private rented sector residential ("PRS") and student accommodation has grown, with PRS witnessing net yield compression from 4.80% to 4.25% during the year to March 2018 (source: CBRE).   

Office occupational market            
Take-up in the Dublin office market in 2017 reached a record high of 3.6m sq. ft., well ahead of the five and 10-year averages of 2.7m and 2.1m, respectively. Despite some large suburban lettings, the city centre accounted for 61% of take-up.  Q1 2018 saw a continuation of this trend with take-up of 0.7m sq. ft., up substantially on the same period in 2017 (source: Knight Frank).  While the Dublin office rental market is usually dominated by relatively small leasing deals, 2017 witnessed larger than usual lettings with 57% of take-up (by area) comprising lettings of greater than 50,000 sq. ft..  This trend has also continued into 2018 with two deals greater than 50,000 sq. ft. in Q1 (source: Knight Frank). 

TMT companies accounted for 51% of take-up in 2017 in the Dublin office market, followed by financial services firms (20%) and state institutions (10%) (source: Knight Frank).  There has also been significant activity in the serviced office market in Dublin in the past year, as international firms such as WeWork and IWG have begun to establish significant presences: 3.2% of take-up in 2017 went to serviced office operators (source: Knight Frank).  While less evident than the Brexit-related moves (and potential moves) to Dublin by UK-based financial and professional services firms, we believe it is investment decisions by technology firms that are likely to have the bigger impact on the Dublin office market ("latent Brexit"): these companies are highly reliant on sourcing skilled labour, often from overseas - something that Brexit and the current US administration are making less certain in those countries.  We believe this trend is one of the drivers of the strong take-up in Dublin over the past 18 months (source: CBRE). 

The overall Dublin office vacancy rate fell to 6.2% in the quarter to March 2018 and in the city centre (where 88% of Hibernia's portfolio is located) the Grade A vacancy rate is now 3.9% (source: Knight Frank).  While the new supply delivered in Dublin has grown year on year since 2015, the strong tenant demand has led to continued rental growth with prime office rents increasing from €62.50psf to €65.00psf in 2017 and remaining at that level at the end of Q1 2018.  

Office development pipeline         
Following the delivery of the first new office developments in Dublin in five years in 2016, 2017 saw growth in supply with a total of 1.4m sq. ft. delivered, over 90% of which has now been let (source: Hibernia).  2.3m sq. ft. is expected to be delivered in Dublin in 2018, of which 1.4m sq. ft. is already let, and 1.8m sq. ft. is expected to be delivered in the CBD.  Between the start of 2018 and the end of 2021 we expect that 7.4m sq. ft. of space will be delivered in Dublin, with 69% of this (5.1m sq. ft.) in the CBD.  At the end of Q1 2018, 4.4m sq. ft. of the aforementioned 7.4m sq. ft. was under construction.  The majority of the expected CBD delivery between the start of 2019 and 2021 will be in the IFSC and North Docks areas as available sites in the Traditional Core and South Docks become increasingly scarce.   Finance for speculative development is still limited, which is delaying some supply.

Residential sector   
Supply of new housing is still below the Government's target of delivering 25,000 homes per annum in the period to 2021 (source: Rebuilding Ireland/Government of Ireland) but completions grew to 19,271 units in 2017, up from 14,932 in 2016: in the Greater Dublin Area completions were up 47% and commencements were up 18% in 2017, to 8,576 and 1,738, respectively (source: Department of Housing). In an attempt to improve the viability (and therefore delivery) of apartments which accounted for only 25% of the units delivered in 2017 (source: Department of Housing), the Department of Housing, Planning and Local Government published updated design standards for new apartments in early 2018.  A study commissioned by the same Department indicated that these measures reduced the build cost of an apartment scheme by 15%.  Despite these measures, viability remains challenging at affordable rental levels.

A lack of available housing rental stock remains, particularly in Dublin where just 1,250 units of rental stock were available as at April 2018, a reduction of 11% year-on-year (source: DAFT). Rents in Dublin are up 12.4% in the 12 months to March 2018 and are now 30% above the previous peak (source: DAFT).  On the sales side, house prices in Dublin are up 13% in the 12 months to February 2018, although they remain 23% off their previous peak (source: Residential Property Price Index). House price growth of c.9% is forecast for 2018, given the current market dynamics (source: Goodbody).



 

Business Review

Acquisitions and disposals           

Hibernia's net acquisition spend in the year was €3.3m including costs (2017: €85.4m), comprising two material acquisitions and the disposal of three investment properties as we started to recycle capital into new opportunities as previously guided.

Acquisitions

·     77 Sir John Rogerson's Quay, South Docks ("77 SJRQ"): the 34,000 sq. ft. office building was bought in February 2018 for €30.7m.  The building was sold with vacant possession but we agreed a simultaneous 25-year lease for the entire building to International Workplace Group plc ("IWG") creating an immediate valuation gain

·     Gateway lands, D22: 31.3 acres of land (zoned for agriculture) adjacent to our Gateway site was purchased in H2 2017 for €6.2m.  This acquisition increased Hibernia's interest in the Newlands Cross area to 45.4 acres and, as described in more detail in the developments section below, we believe it has significant future potential


Disposals

·     The Chancery, D8: the 35,000 sq. ft. office building and four adjoining apartments were sold in December 2017 for €23.8m, equating to a net initial yield of 5.9% for the office accommodation.  The ungeared IRR for Hibernia since acquisition in 2014 was over 17%

·     Two small assets in the South Docks: Hanover Street East, a 13,000 sq. ft. office building, and 11a Lime Street, a neighbouring house, were sold in February 2018 for €12m, significantly ahead of their September 2017 valuations.  The assets had contracted income of €0.2m per annum and were acquired in 2015 for €4.8m with the objective of building a consolidated land holding to undertake a future redevelopment.  The sales price gave Hibernia the majority of the upside it could have expected from any such redevelopment with no risk, and an ungeared IRR of 40%    



 

Portfolio overview

As at 31 March 2018 the property portfolio consisted of 32 investment properties valued at €1,309m[6] (31 March 2017: 28 investment properties valued at €1,167m)6, which can be categorised as follows:


Value as at Mar 18 (all assets)

% of portfolio

% uplift since Mar 17
excl. new acquisitions (1)

% uplift since Mar 17
incl. new acquisitions (1)

Equivalent Yield on value (%) (2)

Passing rent

(€m)

1. Dublin CBD Offices







Traditional Core

€436m

33%

3.7%

3.6%

5.3%(3)

€21.6m

IFSC

€261m

20%

(0.1%)

(0.1%)

5.1%

€12.2m

South Docks

€322m(4)

25%

9.8%

9.9%

4.8%

€10.1m

Total Dublin CBD Offices

€1,019m

78%

4.3%

4.5%

5.1%(3)

€43.9m








2. Dublin CBD Office Development (5)

€134m

10%

19.8%

19.8%

-

-

3. Dublin Residential (6)

€138m

11%

13.4%

13.3%

4.2%(7)

€5.6m(10)

4. Industrial

€18m

1%

(3.7%)

 (8.7%)

3.7%(8)

€0.7m

Total Investment Properties

€1,309m

100%

6.6%

6.6%

5.0%(3) (7) (9)

€50.2m(10)

1.     Includes capex

2.     Yields on unsmoothed values and excluding the adjustment for South Dock House owner occupied space

3.     Harcourt Square yield is based on the total value which includes residual land value

4.     Excludes the value of space occupied by Hibernia in South Dock House

5.     Includes 2WML, 1SJRQ & Cumberland Phase 2

6.     Includes 1WML residential element (Hanover Mills)

7.     These are net yields assuming 80% net to gross. C&W has valued Wyckham Point, Dundrum View, Cannon Place and Hanover Mills on a gross yield basis ex acquisition costs: gross initial yield is 4.9% and gross reversion is 5.2%

8.     Current rental value assumed as ERV as this asset is now being valued on a price per acre basis

9.     Excludes all CBD office developments

10.   Residential rent on a net basis

11.   An Alternative Performance Measure ("APM"). The Group uses a number of such financial measures to describe its performance which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see "Supplementary information" at the end of this report.

 

The office element of our portfolio, which comprises 88% by value and 89% of our contracted income had the following statistics at 31 March 2018:


Contracted rent

(€m/€psf)

ERV

(€m/€psf)

WAULT to review (1)

(years)

WAULT to break/expiry

(years)

% of rent upwards only

% of next rent review cap & collar

% of rent MTM (2) at next lease event

Acquired "in-place" office portfolio

€29.1m(€39psf)

€35.1m (€48psf)

2.6yrs

5.1yrs

37%

-

63%

Completed office developments (3)

€20.5m (€51psf)

€20.6m (€52psf)

4.1yrs

10.4yrs

-

35%

65%

Whole office portfolio

€49.6m (€43psf)

€55.7m (€49psf)

3.2yrs

7.3yrs

22%

14%

64%

1.     To earlier of review or expiry

2.     Mark to Market ("MTM")

3.     1 Cumberland Place, SOBO, 1DC, 2DC & 1WML

Our focus on increasing portfolio income and extending unexpired lease terms continues.  We are achieving this through the completion and letting of new office developments and through rent reviews and lease renewals in the "in-place" portfolio.  In the year we:

·     Added €5.7m to office portfolio income with average term certain of 11.4 years through the letting of the two developments that completed in the year (see further details in next section below)

·     Successfully agreed four rent reviews, adding a further €0.7m to contracted income, an uplift of 138% and in line with ERV.   The acquired "in-place" office portfolio has an average period to the earlier of rent review or expiry of 2.6 years and reversionary potential of 20.6% (at valuers' ERVs) giving us further potential to enhance portfolio income and duration though rent reviews and lease renewals. 


The "in-place" office portfolio vacancy rate was 3% at 31 March 2018 (31 March 2017: 3%).  The vacancy rate rose to 10% at 30 September 2017 mainly due to the completion of 1WML, which was only c. 50% let at that date, and has since reduced as the remaining space in the building has been let.

 

Developments and refurbishments

Schemes completed           
We completed two schemes in the year totalling 197,000 sq. ft. of Grade A office space (see Asset Management section below for further details of the lettings at these schemes).

·     1 Windmill Lane ("1WML"), South Docks: the development of 124,000 sq. ft. of new office space, 7,000 sq. ft. townhall and reception, 8,000 sq. ft. of retail and 14 residential units, was completed on time and on budget in late August 2017, delivering a profit on cost of over 80% (post stamp duty and excluding finance costs).  The building is now over 96% let and is yielding 9.6% on cost

·     Two Dockland Central ("2DC"), IFSC: the refurbishment of 57,000 sq. ft. of office space (out of total building of 73,000 sq. ft.) was completed on schedule and within budget in November 2017.  It delivered a profit on cost of over 35% (post stamp duty change and excluding finance costs) and is now fully let with a yield on cost in excess of 7% (net of dilapidations received)



 

Committed development schemes           
At 31 March 2018, we had two committed schemes in progress which will deliver c. 172,000 sq. ft. of new and refurbished Grade A office space by the end of 2018: none of this is pre-let currently.

·     1 Sir John Rogerson's Quay ("1SJRQ"), South Docks: the 112,000 sq. ft. office building is now largely enclosed and the scheme remains on schedule for completion in Q3 2018. 

·     2 Windmill Lane ("2WML", formerly the Hanover Building), South Docks: the office tenant (BNY Mellon) left the building at the end of March 2017 and the retail tenant (Spar) left in November 2017: the redevelopment and extension of the building, which will deliver 60,000 sq. ft. of office space and a 12,000 sq. ft. gym, is expected to complete in late 2018

 

These two committed schemes will complete the Windmill Quarter, Hibernia's first cluster of office buildings, which will comprise c. 400,000 sq. ft. of office space upon completion.  One of our principal motivations in creating the cluster was to be able to provide some communal working and leisure areas at affordable prices for our tenants in multi-let buildings.  In the case of the Windmill Quarter, this is centred around the Townhall area in 1WML and we are also bringing food & beverage units and a gym to the cluster.   

In May 2018 the Board approved the development of Phase II of Cumberland Place, D2.  This scheme, which is expected to complete in H1 2020, will deliver 50,000 sq. ft. of new Grade A office space.  The building will be at the front of our existing 1 Cumberland Place and has the potential either to link into the existing reception or to be separately accessed, with additional flexibility to interlink certain floors to the existing building if required.


At 31 March 2018 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (222,000 sq. ft.) in the committed developments 1SJRQ, 2WML and Cumberland Place Phase II of €54.94 per sq. ft. and were assuming an average yield of 4.87% upon completion: based on these assumptions they expect a further c. €19m of development profit (excluding finance costs) to be realised through the completion and letting of these schemes. A 25-basis point movement in yields across the properties would make c. €12m of difference to the development profits, and a €2.50 per sq. ft. change in estimated rental value ("ERV") would result in a c.€10m difference.  If current market conditions prevail, we would expect these yields to tighten once the buildings are completed and let.     

Please see further details on the development schemes below:


Sector

Total area post completion (sq. ft.)

Full purchase price

Capex/Est. capex

Est. total cost (incl. land) €psf

ERV (1)

Office ERV psf (1)

Expected practical completion ("PC") Date

 

 

Schemes completed in 12 months to 31 Mar 18

1WML

Office

124k office

8k retail(2)

7k reception

14 resi. units

€25m (3)

€53m (3)

€554psf (4)

€7.6m (5)

€52.59psf (4)

·      Completed in August 2017

·      Delivered profit on cost of >80%(6)

·      Now 96% let

 

Two Dockland Central

Office

73k (7) office

€46m

€11m (8)

€760psf (9)

€4.1m

€52.37psf(10)

·      Completed in November 2017

·      Delivered profit on cost >35%(6)

·      Now fully let

 

Total completed


197k office

8k retail(2)

7k Reception

14 resi. units

€71m

€64m(11)


€11.7m



 

 

Committed schemes

2WML

Office

60k office

12k gym

 

€21m

€22m

€678psf(4)

€3.4m

€53.00psf

Q4 2018

 

1SJRQ

Office

112k office

8k food & beverage

 

€18m

€58m

€639psf (4)

€6.6m

€56.19psf

Q3 2018

 

Cumberland Phase 2

Office

50k office

€0m

€27m

€540psf(4)

€2.7m

€54.48psf

H1 2020

 

Total committed


222k office

20k retail/gym

 

€39m

€107m


€12.7m



 

1.     Per C&W valuation at 31 March 2018

2.     Incl. 1k sq. ft. basement store

3.     Hibernia est. all in cost of 1WML on 100% basis is €78m (i.e. €25m all-in land cost plus €53m total capex). In the prior year, 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 €78m (€37m + €28m + €13m = €78m)

4.     Office demise only

5.     Commercial (incl. reception/townhall) and residential net

6.     Assuming 6% stamp duty and no finance costs at Sep-17 values

7.     57k sq. ft. refurbished out of total 73k sq. ft.

8.     €9.4m net of dilapidations received

9.     Est. total cost psf is net of dilapidations

10.   For entire 73k sq. ft.

11.   €62.4m net of dilapidations received at 2DC

 

Development pipeline            
Following the approval of Cumberland Place Phase II as a committed project, there are now three office schemes in the future pipeline (treating Clanwilliam Court and Marine House as one project) which, if undertaken, would deliver an estimated 505,000 sq. ft. of high quality office space upon completion.  Two of these future projects, Clanwilliam Court / Marine House and Harcourt Square, provide us with opportunities to create clusters of office buildings with shared facilities similar to the Windmill Quarter referenced above.


In the longer term there is also development potential for the 45.4 acres we now own at Gateway: we think it is likely this would take the form of a mixed-use scheme and hence we have removed the nominal 115,000 sq. ft. of offices previously allocated to Gateway from our pipeline.  Please see further details on the development pipeline below:


Sector

Current area

(sq. ft.)

Area post completion

(sq. ft.)

Full purchase price

Comments

Longer term offices






Blocks 1, 2 & 5 Clanwilliam Court and Marine House

Office

139k

200k

€80m

•    Refurbishment/redevelopment opportunity post-2020/2021

•    Potential to add significantly to existing NIA (2) across all four blocks and create an office cluster similar to Windmill Quarter

•    Have applied for planning to refurbish Marine House

Harcourt Square

Office

117k on
1.9 acres

277k

€72m

•    Lease to OPW until Dec 22

•    Site offers potential to create cluster of office buildings and shared facilities

•    Planning in place for 277k sq. ft. redevelopment

•    Seeking revised planning for up to 322k sq. ft.

One Earlsfort Terrace

Office

22k

>28k

€20m

•    Current planning permission for two extra floors

•    Also potential for redevelopment as part of the wider Earlsfort Centre scheme

Total longer-term offices


278k

505k

€172m


Mixed-use






Gateway & Newlands Cross Lands

Mixed-use

45.4 acres (1)

Unclear

€17m

•    Strategic transport location

•    Potential for future mixed-use development

•    Have applied for planning for new access road

Total Mixed -use


45.4 acres (1)

Unclear

€17m


1.     Currently 178k sq. ft. of industrial/logistics on 14.1 acres and 31.3 acres of agricultural land

2.     Net Internal Area ("NIA")

 

Asset management

In the year to 31 March 2018 we added €8.9m to contracted rents through lettings and €0.7m though rent reviews, a total of €7.7m net of lease expiries, surrenders, sales and acquisitions increasing the contracted rent roll by 15.9% to €56.0m.      

Summary of letting activity in the period

Offices:

·     11 new lettings totalling 156,000 sq. ft. and generating €8.3m per annum of incremental new rent.  The weighted average periods to break and expiry for the new leases were 11.4 years and 19.8 years, respectively

·     Four rent reviews concluded over 25,000 sq. ft. adding a further €0.7m of rent per annum: on average these rent reviews were 138% ahead of previous contracted rents and in line with ERVs

·     At present, we have one rent review under negotiation over €0.3m of contracted income

 

Residential:

·     293 of the Company's 326 apartments are located in Dundrum and, in the period, average rents achieved in new lettings by the Company for two bed apartments in Dundrum were €1,799 per month vs average two bed passing rents of €1,758 per month

·     Letting activity and lease renewals at Dundrum generated incremental gross annual rent of €0.2m in the period (new leases signed on 72 apartments and leases renewed on 186 apartments). The total net income from the Dundrum residential properties during the year was €5.1m representing a net to gross margin in excess of 80%

·     The 14 residential units at 1WML, now known as Hanover Mills, have been let to Corporate City Apartments at a rent of €0.4m per annum for a term of 5 years

 

At 31 March 2018 the vacancy rate in the office portfolio was 3%.   

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

1WML, South Docks  
The development completed in late August 2017 and at 31 March 2018 the building was over 96% let, with office tenants including Informatica, Core Media and Pinsent Masons and the retail unit let to Spar. The 14 residential units have been let to Corporate City Apartments, a residential letting provider, on a five year lease. The contracted rent for the property is €7.5m per annum and the weighted average unexpired lease term for the commercial space is 11.6 years.

77 SJRQ, South Docks         
Having acquired the 34,000 sq. ft. building in February 2018, the planned improvement works completed in late March for €0.3m and the 25 year lease to IWG commenced in early April 2018.  IWG is paying initial rent of €1.8m per annum.

Cannon Place, D4     
The tenants in the 16 units moved out during the year to enable remedial works to be carried out.  The programme completed in early 2018.  The building remained vacant at 31 March 2018: given its small scale Hibernia is considering disposing of the asset and recycling its capital into other opportunities.

Central Quay, South Docks   
A ground floor office suite of c. 3,000 sq. ft. was let to Fragomen, a firm of solicitors, in June 2017 on a 10-year lease.  The remaining vacant space on the ground floor (5,000 sq. ft.) and the third floor (12,000 sq. ft.) continues to be marketed.

Clanwilliam Court, Block 2 and Marine House, D2    
In October 2017, the ESB leased the ground floor of Block 2 and second floor of Marine House (8,500 sq. ft. in total) on leases which run until 2020/21 (i.e. these terminate concurrently with other occupiers in the buildings) at a total rent of €0.4m per annum.  In February 2018, 50 car parking spaces were let to Park Rite on a two year term for rent of €0.1m per annum.

The Forum, IFSC       
Depfa Bank ("Depfa"), which occupies all 47,000 sq. ft. of office accommodation in the building and 50 car parking spaces, served notice of its intention to exercise its options to terminate its leasehold interests in March 2019.  Depfa pays rent of €2.0m per annum (an average of €40 per sq. ft. for the office space).  Hibernia is considering options for the building, with the March 2018 ERV of the offices well in excess of the passing rent.

Observatory, South Docks    
We concluded rent reviews with Core Media and Realex in the year, adding €0.6m to our contracted annual rent.  In aggregate the rents agreed were in line with ERV and represented an uplift of 121%.  

Two Dockland Central, IFSC 
The refurbishment works completed in November 2017 (see further detail above).  As at 31 March 2018, the building was fully let to HubSpot, BNY Mellon, ENI, Fountain Healthcare and ALD Automotive with a contracted rent of €4.0m per annum and a weighted average term certain of 9.1 years. 

Flexible workspace arrangement      
The flexible workspace arrangement with Iconic Offices ("Iconic") in 21,000 sq. ft. of Block 1 Clanwilliam Court continues to operate well, with 100% of the workstations occupied and 92% of the available co-working memberships rented as at the end of March 2018. 

Other completed assets        
The remaining completed properties in the portfolio are close to full occupancy. The average period to rent review or lease expiry for the acquired "in-place" office portfolio (not including recently completed developments) is 2.6 years and the team is focused on the upcoming lease events and is working closely with our tenants. 


Financial results and position 

 As at


31 March 2018

31 March 2017

Movement

IFRS NAV - cent per share


160.6

147.9

+8.6%

EPRA NAV1- cent per share


159.1

146.3

+8.7%

Net debt 1


 €202.7m

 €155.3m

+30.5%

Group LTV1


15.5%

13.3%

+16.5%

Financial period ended


31 March 2018

31 March 2017

Movement 

Profit before tax for the period


 €107.1m

 €119.0m

(10.0)%

EPRA earnings1


 €19.4m

 €15.0m

+29.3%

IFRS EPS


15.5 cent

17.4 cent

(10.9)%

Diluted IFRS EPS


15.4 cent

17.2 cent

(10.5)%

EPRA EPS 1


2.8 cent

2.2 cent

+27.3%

Proposed final DPS1


1.9 cent

1.45 cent

 +31.0%

FY DPS1


3.0 cent

2.2 cent

 +36.4%

1An alternative performance measure ("APM"). The Group uses a number of such financial measures to describe its performance, which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see "Supplementary information" at the end of this report.

The key drivers of EPRA NAV per share, which increased 12.8 cent from 31 March 2017 were:

-     19.3 cent per share from the revaluation of the property portfolio, including 8.1 cent per share in relation to development properties: the yield compression seen in the market helped the value of the Group's more prime office assets and its residential assets

-     2.8 cent per share from EPRA earnings in the period

-     0.9 cent per share from profits on the sale of investment properties

-     Payment of the FY17 final and FY18 interim dividends, which decreased NAV by 2.5 cent per share

-     The increase in stamp duty rate in October 2017 reduced NAV by an estimated 7.7 cent per share         

 

Net debt increased by €47.4m to €202.7m (LTV: 15.5%).  Almost all of the increase related to development and refurbishment expenditure: net acquisition spend in the year was €3.3m and maintenance expenditure was c. €3m.           

EPRA earnings were €19.4m, up 29.4% compared to the prior financial year.  The uplift was principally due to increased rental income as a result of new lettings made at our developments in the financial year and a full year of income from lettings made in the prior year.  Administrative expenses (excluding performance related payments) were €13.5m (March 2017: €12.8m). Performance related payments were €6.6m (March 2017: €8.2m) with the majority relating to relative performance fees earned due to the Group's outperformance of the MSCI/IPD Ireland index over the financial year. 

Profit before tax for the period was €107.1m, a reduction of 10.0% over the prior year, mainly due to reduced revaluation gains in the financial year as a result of the increase in stamp duty on Irish commercial property transactions introduced in the 2018 Budget.  This change, which took effect from 11 October 2017, increased the stamp duty rate from 2% to 6%.  Cushman & Wakefield, the Group's independent valuers, calculated that the reduction in the value of the Group's property portfolio had the stamp duty change been in place on 30 September 2017 would have been €53.7m.  This represents a 4.2% reduction in the value of the Group's portfolio as at 30 September and a 4.7% reduction in the value of the Group's office portfolio, including developments.      

Financing and hedging   
As at 31 March 2018, the Group had net debt of €202.7m, a loan to value ratio ("LTV") of 15.5%, up from net debt of €155.3m (LTV of 13.3%) at 31 March 2017, primarily due to development expenditure.     

As intended, the Group repaid the €44.2m non-recourse debt facility for Windmill Lane (the "1WML facility") in February 2018 once early repayment penalties expired.  The facility was €17.5m drawn at the time of repayment and was refinanced using the Group's main debt facility, a €400m revolving credit facility ("RCF") which matures in November 2020.  Since shortly after acquiring full control of 1WML in December 2016 the Group had used the RCF to fund capital expenditure on the scheme due to the comparatively high cost of the 1WML facility.          

Cash and undrawn facilities as at 31 March 2018 totalled €197.3m or €120.3m net of committed capital expenditure. Assuming full investment of the available RCF funds in property, the LTV, based on property values at 31 March 2018, would be c. 27%. The Group's 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.  As at 31 March 2018 it had interest rate caps and swaptions with 1% strike rates in place covering the interest rate risk on €244.7m of the RCF drawings.  Half of this covers the period until November 2020 (when the RCF expires) and half was put in place during the year and covers the period from November 2017 to November 2021. 

With a stable portfolio valued well in excess of €1bn, the Group is considering options to diversify its sources of debt funding and lengthen the average maturity of its debt.

Dividend
Following another substantial uplift in EPRA earnings (distributable income) in the year, the Board has proposed a final dividend of 1.9 cent per share (2017: 1.45 cent) which, subject to approval at the Group's AGM on 31 July 2018, will be paid on 3 August 2018 to shareholders on the register as at 6 July 2018.  All of this final dividend will be a Property Income Distribution ("PID") in respect of the Group's tax-exempt property business.

The Group's policy is to pay out 85-90% of distributable income in dividends, with the interim dividend in a year usually representing 30-50% of the total regular dividends paid out in respect of the prior financial year.  Together with the interim dividend paid of 1.1 cent per share, the total dividend for the year is 3.0 cent per share (2017: 2.2 cent) which represents 108% of the year's EPRA profits due to the larger than expected uplift in NAV and, as a result, performance fee. 

Hibernia's Dividend Reinvestment Plan ("DRIP") remains in place, allowing shareholders to instruct Link, 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

 The Commissioners of Public Works 

6.0

12.1%

Government


2

 Twitter International Company

5.1

10.2%

TMT


3

 Hubspot Ireland Limited

3.8

7.6%

TMT

4

 Bank of Ireland

2.9

5.7%

Banking and Capital Markets

5

 TMT Tenant

2.8

5.7%

TMT

6

 Informatica Ireland EMEA

2.1

4.3%

TMT


7

 Depfa Bank plc

2.0

4.1%

Banking and Capital Markets

8

 Electricity Supply Board

1.9

3.8%

Government


9

 Travelport Digital Limited

1.8

3.7%

TMT

10

 IWG

1.8

3.6%

Co-working



Top 10 total

30.2

60.9




Rest of portfolio

19.4

39.1




Total contracted "in-place" office rent

49.6

100.0



 

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

Sector

€ 'm

%

TMT

20.7

41.9

Government

10.3

20.6

Banking & Capital Markets

10.2

20.6

Professional Services

4.1

8.3

Co-working

2.3

4.6

Insurance & Reinsurance

1.0

2.0

Other

1.0

2.0

Total

49.6

100.0

 

3.   "In-place" office contracted rent and WAULT progression

 

Mar-16

Increase to Mar -17

Mar-17

Increase to Mar -18

Mar-18

In-place office(1) contracted rent

€27.3m

+39%

€38.0m

+31%

€49.6m

In-place office WAULT (2)

4.3yrs

+56%

6.7yrs

+9%

7.3yrs

In-place office vacancy (3)

6%

-3%

3%

-

3%

1.     Excl. arrangement with iconic Offices at Clanwilliam

2.     To earlier of break or expiry

3.     By net lettable office areas. Office area only i.e. excl. retail, basement, gym, townhall etc.)



 

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 principal risks and the steps which the Group has taken to manage them is set out below. 

RISK

Exposure

Mitigation

Impact

Probability

Residual

Risk

impact

Comments

 

Strategic risks

 

Inappropriate business strategy

 

 

 

 

 

 

 

 

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 which cover the next three years. The Group pays close attention to economic and market lead indicators and uses its network of contacts and advisers to ensure it has the best possible understanding of market conditions and likely economic changes.

Budgets are prepared and reviewed by the Board each quarter looking at a rolling 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.

Unchanged

Increasing

Medium

The Irish economy continues to perform strongly with growing numbers in employment. GDP growth in 2017 is forecast at 8.1% and for 2018 and 2019 it is forecast at 5.6% and 4% respectively.

Tenant demand remains strong, particularly from domestic and overseas companies with existing bases in Dublin taking up further space for expansion.

 

market risks

 

Weakening economy

 

 

 

 

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

As a relatively small and "open" economy Ireland is particularly sensitive to deterioration in macro-economic conditions elsewhere.

The Group has set risk appetite limits for key operating indicators. The Group intends to maintain low leverage levels throughout the cycle.

The Group monitors economic lead indicators and market developments and undertakes regular financial forecasting and scenario planning to help it to anticipate and react to potential issues.

Unchanged

Increasing

Medium

Uncertainty around the impact of the UK departure from the EU continues and the impact of the recent US tax reforms also remains unclear. Vacancy rates in Dublin were low at 6% at 31 March 2018 and take-up remain strong. The Group continues to increase WAULTs through lease renewals and letting of new space completed, thereby reducing the risk of rental income decreases and vacancy.

Under-performance of Dublin property market

Underperformance by the Dublin office 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.

Increasing

Increasing

Medium

There was record take-up in the Dublin office market in 2017 and the trend has continued in 2018, with a strong first quarter. In addition, demand for office and residential assets has led to yield compression in the financial year ended 31 March 2018.  

 

development risks

 

Poor execution of development projects

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

The Group has a Development Committee which closely monitors projects, the development supply pipeline in Dublin and the rental market. The Group's strategy in setting building contracts is to fix pricing where feasible. This, coupled with significant in-house experience in managing large scale projects, reduces construction risk.

Unchanged

Unchanged

Medium

The Group completed two schemes in the year, which are now over 96% let and which completed on time and on budget. As at 31 March 2018 the Group had two committed schemes with a third added in May 2018, totalling 222k sq. ft. Two of these are on track to complete by late-2018. while the third is targeted for H1 2020. 

In the year the Group added to the development team to ensure that it remains fully resourced for the Group's pipeline of development projects.

 

investment risks

 

Poor investment of capital or mis-timed sale of assets

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 is continually assessing the various Dublin sub-markets. The Group 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.

Unchanged

Unchanged

Medium

The Group has a portfolio valued at over €1.3billion: in the year ended 31 March 2018 it spent €39m principally in two acquisitions. It sold three properties for €36m. The Group expects further recycling of capital in future years.

 

Excessive concentration on single assets, locations, tenants or tenant sectors

Excessive exposure leading to poor performance or reduced liquidity

The Group maintains risk exposure targets and limits regarding concentration risks and assesses its portfolio regularly against these.

Unchanged

Increasing

Low

All the Group's investments are within Dublin and the majority are in the office sector. The Group has built a balanced portfolio comprising 32 properties. As at 31 March 2018 the largest single asset represented 11% of the portfolio by value (11% as at March 2017). The portfolio's top 10 tenants account for 61% of the contracted rent roll as at March 2018 (67% as at March 2017).

 

asset management risks

 

Poor asset management

 

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 dedicated and experienced Asset and Building Management teams which have been expanded in the year.

The Finance team actively monitors tenants both in terms of rent collection and also for changes in covenant strength.

The Group's separate building management subsidiary 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.

Unchanged

Decreasing

Low

During the financial year, the Group has re-branded buildings, and increased tenant interactions including completion of a tenant satisfaction survey. Action points arising from this survey are being addressed. All of the multi-let buildings, 13 in total, are under the direct management of the Group. Older stock continues to be refurbished and let at or above ERV. Sustainability goals have been set to improve environmental impact and work to improve this is well under way.

 

finance risks

 

 

Inappropriate capital structure for market conditions

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 is limited to a 40% LTV ratio at incurrence: these are well below the debt covenant limits. In addition, any new facilities must be approved by the Board. Hedging instruments are used to limit the Group's 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.

Unchanged

Unchanged

Low

At 31 March 2018 the Group indebtedness remained modest with a LTV ratio of 16% (31 March 2017: 13%), with committed capital expenditure in the next 24 months expected to increase the LTV ratio to c. 20%.

No covenant breaches have occurred in the period.

The Group is considering options to diversify its sources of debt funding and extend maturity dates which stood at 2.6 years at 31 March 2018.

 

Lack of available funds for investment

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 financial 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.

Decreasing

Increasing

Low

At 31 March 2018 the Group had cash and undrawn facilities totalling €197m, or €120m net of committed capital expenditure (31 March 2017: €289 or €150m). The Windmill facility was repaid in February 2018. The Group continues to monitor capital requirements to ensure that future requirements are anticipated and met within the limits of its leverage targets. During the year the Group sold three properties and acquired two, spending €3m net.

 

people risks

 

 

Loss or shortage of key staff or lack of motivation

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

The expiry of the existing remuneration structure in November 2018 and the implementation of a new structure is a particular area of risk this year.

 The Group has a remuneration system that is linked closely to Group performance. Remuneration includes a long-term incentive element to help better align employees' interests with shareholders' and encourage retention. Engagement with staff at all levels, improvements in the office environment and an active social calendar encouraging staff to interact all help to foster a positive team spirit and help to ensure that Hibernia is a good place to work.

Unchanged

Increasing

Low

With the expiry of the current performance remuneration arrangements in November 2018, the Group has developed a new Remuneration Policy for approval by shareholders at the AGM in July 2018 and has consulted with its largest shareholders on this.

 

regulatory & tax risks

 

 

Regulatory, legislative, tax, environmental or planning changes

Tax and other regulatory changes can impact returns. In 2017 the Government increased stamp duty on commercial property from 2% to 6% which impacted directly on the value of the Group's investment properties. Failure to comply with any legislative or regulatory 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.

 

A separate Sustainability Committee has been formed and actively monitors progress in improving sustainability

 

Unchanged

 

Unchanged

Low

Risk remains unchanged and is managed proactively. A major focus for 2018 is the improvement of sustainability measures.

 

Failure to comply with requirements of Irish REIT Regime

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.

Unchanged

Unchanged

Low

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

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 effectively manage 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 works to ensure 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 to complete the "safe pass" course in advance. 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.

Unchanged

Decreasing

Low

The Group continues to maintain high standards of health and safety. A comprehensive health and safety strategy has been prepared with the assistance of an external consultant.

 

Business risks

 

 

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

Significant damage to the 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 developed business continuity plans, has improved its IT security measures during the year and has insurance in place to cover catastrophic events.

Increasing

Increasing

Low

The threat of cyber security attacks has become more prevalent over the last number of years.

We continue to strengthen existing policies and procedures and implement improvements to minimise the threat of any such incidents. In addition, business continuity management and crisis management plans are reviewed regularly.

 

 



 

 

Consolidated income statement

For the financial year ended 31 March 2018

 




Financial year ended 31 March 2018

 

Financial year ended 31 March 2017

 

Notes


€'000

 

€'000

 












Total revenue

5


54,168 


46,372 

Income






Rental income



49,075 


42,519 

Property expenses

6


(3,352)


(2,838)

Net rental income



45,723 


39,681 







Gains and losses on investment properties

7


87,802 


103,525 

Other gains and (losses)

8


(41)


2,476 

Total income after revaluation gains and losses


133,484 


145,682 







Expense






Performance-related payments

11


(6,599)


(8,215)

Administration expenses

9


(13,517)


(12,770)

Total operating expenses



(20,116)


(20,985)

Operating profit



113,368 


124,697 







Finance income

12



10 

Finance expense

12


(6,243)


(5,671)

Profit before tax



107,132 


119,036 

Income tax

13


(31)


(450)

Profit for the period



107,101 


118,586 







Earnings per share






Basic earnings per share (cent)

15


15.5 


17.4 

Diluted earnings per share (cent)

15


15.4 


17.2 

EPRA earnings per share (cent)

15


2.8 


2.2 

Diluted EPRA earnings per share (cent)

15


2.8 


2.2 







 

 

 

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.



Consolidated statement of comprehensive income

For the financial year ended 31 March 2018

 



Financial year ended 31 March 2018

 

Financial year ended 31 March 2017

 

Notes

 €'000


 €'000






Profit for the period


107,101 


118,586 






Other comprehensive income, net of income tax









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



Gain on revaluation of land and buildings

18

657 


186 






Items that may be reclassified subsequently to profit or loss:



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

24b

(112)


(105)






Total other comprehensive income


545 


81 






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


107,646


118,667 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.



 

Consolidated statement of financial position

As at 31 March 2018

 



31 March 2018


31 March 2017


Notes

 €'000


 €'000

Assets





Non-current assets





Investment property

17

1,308,717


1,167,387

Property, plant and equipment

18

5,411


4,801

Other financial assets

21

240


267

Trade and other receivables

22

7,787


8,536

Total non-current assets


1,322,155


1,180,991

Current assets





Trade and other receivables

22

7,239


10,108

Cash and cash equivalents

20

22,521


18,148



29,760


28,256

Non-current assets classified as held for sale

19

534


385

Total current assets


30,294


28,641






Total assets


1,352,449


1,209,632

Equity and liabilities





Capital and reserves





Issued capital and share premium

23

686,696


678,110

Other reserves

24

9,620


9,759

Retained earnings

25

415,414


325,983

Total equity


1,111,730


1,013,852

Non-current liabilities





Financial liabilities

26

219,218


171,138

Total non-current liabilities


219,218


171,138






Current liabilities





Trade and other payables

27

21,501


24,642

Total current liabilities


21,501


24,642






Total equity and liabilities


1,352,449


1,209,632






IFRS NAV per share (cents)

16

160.6


147.9

EPRA NAV per share (cents)

16

159.1


146.3

Diluted IFRS NAV per share (cents)

16

159.1


146.3

 

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.



Consolidated statement of changes in equity

For the financial year ended 31 March 2018

 





Financial year ended 31 March 2018




Notes

Share Capital


Share Premium

Retained earnings


Other reserves


Total



€'000


€'000

€'000


€'000


€'000

Balance at start of financial year


68,545


609,565

325,983


9,759


1,013,852

Total comprehensive income for the financial year










Profit for the financial year


 -  


 -  

107,101


-  


107,101

Total other comprehensive income


 -  


 -  

 -  


545


545



68,545


609,565

433,084


10,304


1,121,498

Transactions with owners of the Company, recognised directly in equity






Dividends

14

 -  


 -  

(17,656)


 -  


(17,656)

Issue of Ordinary Shares in settlement of share-based payments

23

690


7,896

 -  


(8,586)


 -  

Share issue costs

23

 -  


 -  

(14)


 -  


(14)

Share-based payments expense

11




 -  


7,902


7,902











Balance at end of financial year


69,235


617,461

415,414


9,620


1,111,730





 

 

 

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


 -  


 -  

(10,624)


 -  


(10,624)

Issue of Ordinary Shares in settlement of share-based payments

23

420


5,292

 -  


(5,712)


 -  

Share issue costs


 -  


 -  

(19)


 -  


(19)

Share-based payments expense


 -  


 -  

 -  


9,254


9,254











Balance at end of financial year


68,545


609,565

325,983


9,759


1,013,852

 

 

 

 

 

 

 

 The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

Consolidated statement of cashflows

For the financial year ended 31 March 2018


Notes

Financial year ended 31 March 2018


 Financial year ended 31 March 2017 

Cash flows from operating activities


€'000


€'000

Profit for the financial period


107,101 


118,586

Gain on sales of investment properties

7

(6,425)


-

Other gains and losses


-


380

Adjusted for non-cash movements:

28

(62,480)


(83,889)

Operating cash flow before movements in working capital


                    38,196


35,077

(Increase)/decrease in trade and other receivables


(989)


7,224

Increase/(decrease) in trade and other payables


1,830


(1,805)

Net cashflow from operating activities


39,037


40,496

Cash flows from investing activities





Cash paid for investment property

28

(93,787)


(137,200)

Cash received from sales of investment properties

7

35,815


 -  

Cash received in relation to other non-current assets held for sale


 -  


9,534

Purchase of fixed assets

18

(238)


(225)

Income tax received/(paid)


(4)


(367)

Finance income


7


10

Finance expense


(5,378)


(4,521)

Net cashflow absorbed by investing activities


(63,585)


(132,769)

Cashflow from financing activities





Dividends paid

25

(17,656)


(10,624)

Borrowings drawn

26

86,454


97,877

Borrowings repaid

26

(39,674)


 -  

Derivatives premium paid


(189)


 -  

Share issue costs


(14)


(19)

Net cash inflow from financing activities


28,921


87,234






Net increase/(decrease) in cash and cash equivalents


4,373


(5,039)

Cash and cash equivalents start of financial period


18,148


23,187

Increase/ (decrease) in cash and cash equivalents


4,373


(5,039)

Net cash and cash equivalents at end of financial period


22,521


18,148

 

 

 

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

 

Notes to the financial statements for the year ended 31 March 2018

Section 1 -  General

This section contains the significant accounting policies and other information that apply to the Group's financial statements as a whole.  Those policies applying to individual areas such as investment properties are described within the relevant note to the consolidated financial statements. This section also includes a summary of the new European Union endorsed accounting standards, amendments and interpretations that have not yet been adopted and their expected impact on the reported results of the Group.

1.   General Information

Hibernia REIT plc, the "Company", registered number 531267, together with its subsidiaries and associated undertakings (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 Euronext Dublin (formerly 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 Euronext Dublin 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 2018. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings and derivative 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 IFRS 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 cashflows relating to transactions between members of the Group are eliminated in full on consolidation.

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 signing of this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 31 March 2018 of €23m (31 March 2017: €18m), is generating positive operating cashflows and, as discussed in note 26, has in place a debt facility with a period to maturity of 2.6 years and an undrawn balance of €179m at 31 March 2018 (31 March 2017: €289m). 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 (see note 11 for more details), 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 redevelopment 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.

-    1-6 Sir John Rogerson's Quay, a development property which is nearing completion, has been valued on an investment basis, using market rental values capitalised with a market capitalisation rate, from which remaining capital expenditure has been deducted.

-    Gateway, which is currently partly rented on short-term leases, has been valued on a price per acre basis as early stage plans are in place to redevelop this property in the future and this approach reflects the highest and best use of this property.

Block 3 Wyckham Point and Hanover Mills: Both properties are held for long-term property rental and were developed on this basis. VAT was payable on the acquisition (in the case of Block 3 Wyckham Point only) and on the construction costs for both schemes which has been treated as irrecoverable and recognised as part of the capital costs of both projects. If either property is sold within five years of completion, i.e. before mid-2020 (in the case of Block 3 Wyckham Point), 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 neither property is intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the Valuer's valuation of either asset was deemed necessary.

Share-based payments

The Group has a number of share-based payment arrangements in place. The determination of the grant date in particular can be complex in nature and requires significant judgement in the interpretation and application of IFRS 2 to these arrangements. The determination of grant date for the performance-related payments element of share-based payments (note 11) was given particular attention by the Audit Committee. Although the grant date of the payments at note 11a and 11b (those arising from internalisation) has been amended from 31 March each financial year to the date of original agreement of the conditions of the payment, the Directors have determined that there is no impact on the accounting for this payment as it is dependent on future performance conditions which include both service and other non-market performance conditions and can only therefore be measured during the period in which it is earned, i.e. during each financial year.  This is considered a significant judgement due to the quantum of performance-related payments shown in note 11 each year.  The calculation of the absolute element of the performance fee requires some judgement around adjustments to EPRA NAV and while not material in nature, due to the related party nature of the performance-related payments, these are reviewed by the Audit Committee. 

f.    Analysis of sources of estimation uncertainty

Valuation of investment properties 

The Group's investment properties are held at fair value and were valued at 31 March 2018 by the external valuer, Cushman and Wakefield ("C&W"), a firm employing qualified valuers in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). Further information on the valuations and the sensitivities is given in note 17. The Group's investment properties at 31 March 2017 were valued by CBRE Unlimited, the Group's previous valuers. C&W were appointed by Hibernia in September 2017 following a tender process after a rotation of the Group's valuers was considered and approved by the Audit Committee.

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 material 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 are satisfied that the valuation of the Group's properties is appropriate for inclusion in the financial statements. The fair value of the Group's properties is based on the valuation provided by C&W. 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 C&W 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 €6.8m (31 March 2017: €4.1m).

There were no other significant judgements or key estimates that might have a material impact on the consolidated financial statements at 31 March 2018.

 

3.     Application of new and revised International Financial Reporting Standards ("IFRS")

Impacts expected from relevant new or amended standards

The following standards and amendments will be relevant to the Group but were not effective at the financial year end 31 March 2018 and have not been applied in preparing these consolidated financial statements. The Group's current view of the impact of these accounting changes is outlined below: 

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.

The Group's financial instruments consist of its borrowings and a small number of hedging instruments and loans. There are also some minor amounts in trade receivables and payables which will also be classified as financial instruments. These are analysed further in note 29. We have carried out an assessment of the impacts and implemented these changes from 1 April 2018. While there are some minor amendments to the treatment of financial instruments due to the implementation of IFRS 9, there is no material impact and retained earnings are not expected to be materially impacted based on unaudited calculations.  

IFRS 15 Revenue from Contracts with Customers is effective 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 IAS 17. IFRS 15 will apply to service charge income, performance fees and miscellaneous minor contracts. This is effective for the financial year commencing 1 April 2018 and therefore implementation has commenced. The impact of this standard on the recognition of revenue is minor. The service charge income stream is accounted for as a single performance obligation satisfied over time by measuring its progress towards complete satisfaction of that performance obligation. Management fees relating to the provision of services to tenants are recognised as these services are provided.  This is in line with the prior recognition approach.  

IFRS 16 Leases is applicable for annual periods beginning on or after 1 January 2019.

This standard 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 Group has some immaterial lease arrangements for minor office assets and recognising these in accordance with IFRS 16 will have no material impact on its financial statements.

 

Section 2 -  Performance

This section includes notes relating to the performance of the Group for the year, including segmental reporting, earnings per share and net assets per share as well as specific elements of the consolidated statement of income.

4.     Operating segments

A.   Basis for segmentation

The Group is organised into six business segments, against which the Group reports its segmental information. These segments mainly represent the different investment property classes. The Group has divided its business in this manner as the various asset segments differ in their character and returns profiles depending on market conditions and reflect the strategic objectives that the Group has targeted.  The following table describes each segment:

 

Reportable segment

Description

Office Assets

Office assets comprise central Dublin completed office buildings, all of which are generating rental income. Those assets which are multi-tenanted or multi-let are mainly managed by the Group. Income is therefore rental income and service charge income, including management fees, while expenses are service charge expenses and other property expenses. Where only certain floors of a building are under-going refurbishment the asset usually remains in this category, as was the case in Two Dockland Central.

Office Development Assets

Office development assets are not currently revenue generating and are the properties that the Group has currently under development in line with its strategic objectives. Development profits, recognised in line with completion of the projects, enhance Net Asset Value ("NAV") and Total Portfolio Return ("TPR"). Once completed these assets are transferred to the Office Assets segment at fair value.

Residential Assets

This segment contains the Group's income generating multi-tenanted residential assets.

Industrial Assets

This segment contains industrial units with adjacent agricultural land which generates some rental income.  

Other Assets

This segment contains other assets not part of the previous four strategic segments. It originally represented the "non-core" assets, i.e. those assets identified for resale from loan portfolio purchases. Currently this segment contains assets held for sale.

Central Assets and Costs

Central Assets and Costs includes the Group head office assets and expenses.

 

The Board reviews the internal management reports, including budgets, at least quarterly at its scheduled meetings.  There is some interaction between reportable segments, for example completed development properties transferred to income-generating segments, for example 1WML, in this financial year. These transfers are made at fair value on an arm's length basis using values determined by the Group's independent Valuers.

B.  Information about reportable segments

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. These 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.

 

An overview of the reportable segments is set out below:

Group consolidated segment analysis

For the financial year ended 31 March 2018


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

47,028 

-

6,475 

665 

 -  

54,168 

Net rental income

41,935 

-

6,475 

665 

 -  

49,075 

Property outgoings

(2,019)

-

(1,257)

(16)

(60)

 -  

(3,352)

Total property income

39,916 

5,218 

649 

(60)

 -  

45,723 









Gains and losses on investment properties

34,311 

38,405 

16,781 

(1,695)

 -  

 -  

87,802 

Other gains and (losses)

 -  

 -  

 -  

 -  

 -  

(41)

(41)

Total income

74,227 

38,405

21,999 

(1,046)

(60)

(41)

133,484 









Performance-related payments

 -  

 -  

 -  

 -  

 -  

(6,599)

(6,599)

Administration expenses

 -  

 -  

 -  

 -  

 -  

(13,232)

(13,232)

Depreciation

 -  

 -  

 -  

 -  

 -  

(285)

(285)

Total operating expenses

 -  

 -  

 -  

 -  

 -  

(20,116)

(20,116)









Operating profit/(loss)

74,227 

38,405

21,999 

(1,046)

(60)

(20,157)

113,368 

Finance income

 -  

 -  

 -  

 -  

 -  

Finance expense

(2,838)

 -  

 -  

 -  

(103)

(3,302)

(6,243)

Profit before tax

71,389 

38,405 

21,999 

(1,046)

(163)

(23,452)

107,132 

Income tax

 -  

 -  

 -  

 -  

 -  

(31)

(31)

Profit for the financial year

71,389

38,405 

21,999 

(1,046)

(163)

(23,483)

107,101 









Total segment assets

1,034,046 

134,500 

139,025 

17,800 

686 

26,392 

1,352,449 









Investment properties

1,017,937 

134,500 

138,480 

17,800 

 -  

 -  

1,308,717 

 

 

 

 

 

 

 

 

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 










Net 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)

Administration expenses


                  -  

                      -  

                   -  

                   -  

                -  

(207)

(207)

Depreciation


                   -  

                      -  

                   -  

                   -  

                -  

(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 

Finance income


 -  

 -  

 -  

 -  

 -  

10 

10 

Finance expense


(2,145)

(167)

                   -  

                   -  

                -  

(3,359)

(5,671)

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 

 

C.  Geographic information

All of the Group's assets, revenue, and costs are based in Ireland, mainly in central Dublin.

D.  Major customers

Included in gross rental income are rents of €11.1m (31 March 2017: € 11.7m) which arose from the Group's two largest tenants, both of which contributed more than 10% of the rental income. No other single tenant contributed more than 10% of the Group's revenue in 2018 or 2017.

5.   Total revenue

Accounting policy

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, including fixed rental uplifts, arises on the Group's investment properties and is recognised in the consolidated income statement on a straight-line basis over the term of the lease. 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 therefore recognised on the same straight-line basis over the lease term. Contingent rents, being lease payments that are not fixed at the inception of a lease, such as turnover rents, are recorded as income in the period in which they are earned.

Service charge income and other sums receivable from tenants are recognised as revenue in the period in which the related expenditure is recognised.



Financial year ended

 31 March 2018


Financial year ended

31 March 2017



 €'000


 €'000






Gross rental income


46,306 

 

41,215 

Rental incentives


2,769 

 

1,304 

Rental income


49,075 

 

42,519 

Service charge income


5,019 

 

1,048 

Windmill promote fee


 -  

 

2,511 

Other income


74 

 

294 

 





Total revenue


54,168 

 

46,372 

 

6.   Net property expenses

Accounting policy

Net property expenses comprise service charges and other costs directly recoverable from tenants and non-recoverable costs directly attributable to investment properties. 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, vacancy costs and other costs of commercial properties.



Financial year ended

31 March 2018


Financial year ended

31 March 2017



 €'000


 €'000






Service charge income


(5,019)

 

(1,048)

Service charge expense


5,224 

 

1,205 

Other property expenses


3,147 

 

2,681 

 







3,352

 

2,838 

 

Included in other property expenses is an amount of €1.2m (31 March 2017: €0.9m) relating to void costs, i.e. costs relating to assets which were not income-generating during the financial year.

7.         Gains and losses on investment properties



Financial year ended 31 March 2018


Financial year ended 31 March 2017


Note

 €'000


 €'000

Revaluation of investment properties

17

81,377


103,525

Gain on sale of investment properties


6,425


 -  








87,802


103,525








Financial year ended 31 March 2018


Financial year ended 31 March 2017



 €'000


 €'000

Sale price of investment properties


35,815


 -  

Carrying value at sales date


(29,390)


 -  








6,425


 -  

 

 

8.   Other gains and losses



Financial year ended 31 March 2018


Financial year ended 31 March 2017



 €'000


 €'000






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

 -  


43

Windmill promote fee


 -  


2,511

Other (losses)


(41)


(78)






Other (losses)/gains


(41)


2,476

 

9.   Administration expenses

Accounting policy

Administration expenses are recognised when incurred in the consolidated income statement.

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



Financial year ended 31 March 2018


Financial year ended 31 March 2017

 


Note

 €'000


 €'000

 






 

Non-executive Directors' fees


286

 

300

 

Professional Valuers' fees


281

 

418

 

Prepaid remuneration expense


4,444

 

4,444

 

Depository fees


278

 

296

 

Depreciation

18

285

 

207

 

"Top-up" internalisation expenses for financial year        11

1,743

 

1,101

Staff costs

10

                            3,405

 

2,760

 

Other administration expenses


                            2,795

 

3,244

 

 





 

Total administration expenses


13,517

 

12,770

 

 

All fees paid to non-executive Directors are for services as Directors to the Company. Non-executive Directors receive no other benefits other than Frank Kenny who also received €181k in consulting fees during the year and 1.3m shares or €1.8m as a Vendor (note 34).

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 the service. These payments were made in November 2015 as part of the internalisation of the Investment Manager and were made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. These clawback arrangements over one-third of this payment are removed on each anniversary of the acquisition date until November 2018. €2.7m (31 March 2017: €7.1m) is included in trade and other receivables as prepaid remuneration (note 22).

"Top-up" internalisation expenses relate to additional management fees that would have been due under the IMA due to increases in NAV in the period since internalisation. These are payable in shares of the Company (note 11).

Professional valuers' fees are paid to Sherry FitzGerald (Commercial) Limited, trading as Cushman & Wakefield (formerly DTZ Sherry FitzGerald) ("C&W"), in return for their services in providing independent valuations of the Group's investment properties on an at least twice-yearly basis. Professional valuers' fees are charged on a fixed rate per property valuation. The fees for the period from September 2017 to 31 March 2018 were agreed in September 2017 through a letter of engagement. The fees payable to C&W are less than 5% of their fee income for the financial year 31 December 2016.

 

Auditors' remuneration (excluding VAT)



Financial year ended 31 March 2018


Financial year ended 31 March 2017



 €'000


 €'000

Company





Audit of entity financial statements


71 

 

70 

Other assurance services


 -  

 

 -  

Tax advisory services


 -  

 

 -  

Other non-audit services


 -  

 

 -  

Company total


71

 

70 

Group





Audit of the Group financial statements


36 

 

35 

Audit of subsidiaries financial statements


28 

 

30 

Other assurance services1


16 

 

23 

Tax advisory services


 -  

 

 -  

Other non-audit services


 -  

 

 -  

Group total


80

 

88 






Total


151 

 

158 

 1Other assurance services include the review of the Interim Report




 

10. Employment

The average monthly number of persons (including executive Directors) directly employed during the financial year in the Group was 28 (31 March 2017: 18). The single largest area of growth since last year was building management services, as the number of buildings under Hibernia's direct management increased.

Total employees at financial year end:

Group

 



31 March 2018


31 March 2017



Number


Number

At financial year end:





Building management services





 Head Office staff



 On-site staff



 


11 

 

Administration


21 

 

16 

 





Total employees


32 

 

23 

 

Company



Financial year ended 31 March 2018


Financial year ended 31 March 2017



Number


Number

At financial year end:





Administration


21 


16 

No amount of salaries and other benefits is capitalised into investment properties. Staff costs are allocated to the following expense headings:

Group



Financial year ended 31 March 2018


Financial year ended 31 March 2017

The staff costs for the above employees were:







 €'000


 €'000

Wage and salaries


4,023 


2,974 

Social insurance costs


415 


251 

Employee share-based payment expense


570 


443 

Pension costs - defined contribution plan


235 


195 






Total


5,243 


3,863 








Financial year ended 31 March 2018


Financial year ended 31 March 2017

Staff costs are allocated to the following expense headings:

 €'000


 €'000

Administration expenses


3,405 


2,760 

Net property expenses1


848 


217 

Performance-related payments


990 


886 






Total


5,243 


3,863 

1Most of the €848k is recovered directly from tenants via the service charge arrangements within Hibernia managed buildings.

 

Company



Financial year ended 31 March 2018


Financial year ended 31 March 2017

The staff costs for the above employees were:







 €'000


 €'000

Wage and salaries


3,261 


2,785 

Social insurance costs


350 


231 

Employee share-based payment expense

570 


443 

Pension costs - defined contribution plan


214 


187 






Total


4,395 


3,646 








Financial year ended 31 March 2018


Financial year ended 31 March 2017

Staff costs are allocated to the following expense headings:

 €'000


 €'000

Administration expenses


3,405 


2,760 

Performance-related payments


990 


886 






Total


4,395 


3,646 

 

11. Share-based payments

Accounting policy

The Group has a number of share-based arrangements in place. These share-based payments are transactions in which the Group receives services in exchange for its equity instruments or by incurring liabilities for cash amounts based on the price of the Group's shares. Share-based payments settled in the Group's shares are measured at the grant date except where they are subject to non-market performance conditions which include a service condition in which case they are measured over the relevant service period.

Share-based payments that are granted to employees at the end of each financial year, and that have a vesting period subject to service conditions, are recognised at fair value at the grant date and amortised through the consolidated income statement over the vesting period. Share-based payments that are cash-settled are re-measured at fair value at each accounting date. 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 share-based payment reserve.

The following share-based payment arrangements were in place during the financial year.

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 calculated as under the IMA for each financial year and settled mainly in shares of the Company until the expiry of the agreement in November 2018. It was agreed that up to 15% of any performance fees would be set aside for the payment of cash bonuses and deferred share-based payments (see part b below) to employees. This was agreed within the Share Purchase Agreement ("SPA") which was signed on 23 September 2015 and approved by shareholders at an EGM on 27 October 2015. As all parties had a shared understanding of the terms and conditions of the arrangement and approval was obtained on 27 October 2015, the grant date is determined to be this date for payments made under this arrangement.

At the grant date, the Company has granted possible future share awards based on future performance conditions which include both service and other non-market performance conditions. The service period is defined in the contract as each financial year until the expiry of the agreement on 26 November 2018. Expenses are therefore recognised over each financial year as services are provided.

Performance-related payments comprise absolute and relative performance fees as described under the IMA as well as "top-up" internalisation expenses that relate to management fees that would have been due under the IMA as a result of increases in NAV in the period since internalisation.

At the start of each financial year, as part of the budgeting process, the Board estimates the level of performance-related fees that are expected to be earned over the period. The number of shares expected to issue in payment of these fees is estimated by reference to the share price at each accounting date. At the year end, the calculation of the monetary value of the performance-related payments is determined using the EPRA Net Asset Value of the Group at the financial year end and the Total Property Return as determined by IPD and using calculation protocols as were set out in the Investment Management Agreement and as subsequently modified by shareholder agreement at an Extraordinary General Meeting ("EGM") on 26 October 2016. The number of shares which will be issued to satisfy these payments is determined using the average closing price of Hibernia shares on the Irish Stock Exchange for the 20 business days preceding the date of the financial period end.

The Directors have calculated the amount of fees that are payable under this arrangement for the financial year ended 31 March 2018 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-based payment reserves (see also part b). In addition, amounts fell due in December 2016 in relation to the achievement of return targets on the termination of the Windmill Lane joint arrangement and these were provided in the financial year ended 31 March 2017.

Summary of performance-related payments

 


Financial year ended 31 March 2018


Financial year ended 31 March 2017

 €'000


 €'000

Performance-related payments

6,599 


5,907 

 

Windmill promote and development management fees

-  


2,308 

Total performance-related payments for the financial year

6,599 

  

8,215 

"Top-up" internalisation expenses (note 9)

1,743 


1,101 

Total

8,342 


9,316 

Of which are:




Payable to Vendors (share-based, see below)

7,352 


8,430 

Payable to employees (approximately 50% share-based - see part b below)

990 


886 

Total

8,342


9,316 

 

Shares issued relating to performance-related payments to Vendors 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 the issue date. All shares are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them.

Share-based performance-related payments during the financial year

€0.5m of the above total performance payment of €8.3m will be paid in cash bonuses to staff, the balance of €7.8m will be payable in shares.

Summary of share-based payments outstanding as at 31 March 2018


Payment provided at start of financial year

Paid during financial year

Provided during financial year1

Balance outstanding at end of financial year


 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

a.     Performance-related payments

8,586 

6,895 

(8,586)

(6,895)

7,332 

5,079 

7,332 

5,079 

b. Employee long-term incentive plan - IMA portion

881 

708 

 -  

 -  

492 

336 

1,373 

1,044 

c.     Employee long-term incentive plan - interim arrangements

 -  

 -  

 -  

 -  

78 

60 

78 

60 

Balance at period end

9,467 

7,603 

(8,586 )

(6,895)

7,902 

5,475 

8,783

6,183 










1The 20-day average share price prior to the financial year end was 1.448

Summary of share-based payments outstanding as at 31 March 2017


Payment provided at start of financial year

Paid during financial year

Provided during financial year1

Balance outstanding at end of financial year


 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

a.     Performance-related payments

5,469 

4,200 

(5,469)

(4,200)

8,586 

6,895

8,586 

6,895 

b. Employee long-term incentive plan - IMA portion

456 

350 

 -  

 -  

425 

358 

881 

708 

c.     Employee long-term incentive plan - interim arrangements

 -  

 -  

 -  

 -  

 -  

 -  

 -  

 -  

Balance at period end

5,925 

4,550 

(5,469)

(4,200)

9,011 

7,253 

9,467 

7,603 










1The 20-day average share price prior to the financial year end was 1.237

a.     Performance-related payments

31 March 2018

Grant date: 27 October 2015

Measurement date: 31 March 2018



Financial year ended 31 March 2018


Financial year ended 31 March 2017


Share price

€ '000


Number of shares '000


€ '000


Number of shares '000










Opening balance at start of financial year

        1.245

8,586 


6,895 


5,469 


4,200 

Payment made during the financial year


(8,586)


(6,895)


(5,469)


(4,200)

Amounts provided during the financial year


8,322 




9,472 



Less: payable to employees (b)


(990)




(886)



Share-based payment due to vendors

       

7,332 


5,079 


8,586


6,895 










Closing balance at end of financial year

        1.444

7,332


5,079


8,586 


6,895 

 

The settlement of performance-related fees for the financial year ended 31 March 2017 was made on 3 July 2017 resulting in the listing of 6,895,231 new Ordinary Shares when the prior days closing price of the Company's shares was €1.375.

b.   Employee long-term incentive plan - IMA portion

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 these performance-related payments. Shares awarded under the PRR, approximately 50% of the total award or up to 7.5% of the performance fee element of the performance-related payments at a. above, are in the form of a contingent award 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. These shares are a part of the payments outlined at part a. above and the grant and measurement dates are determined on the same basis. 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 measurement 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 2018 is €0.5m (31 March 2017: €0.4m). When these shares vest they are assessed for tax purposes at the current market share price. Employee taxes are recognised through payroll.

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 from any possible departures relating to these shares.

Employee long-term incentive plan - IMA portion

31 March 2018

Grant date: 27 October 2015

Measurement date: 31 March 2018



Financial year ended 31 March 2018


Financial year ended 31 March 2017


Share price

€ '000


 

 

Number of shares '000


€ '000


 

 

Number of shares '000










Opening balance at start of financial year

   1.245

881 


708 


456 


350 

Amounts provided during the year *


990 


 -  


870 


 -  

Of which is payable in cash


(498)


 -  


(445)



Share-based element this year


492 


336 


425


358 










Closing balance at end of financial year

   1.444

1,373 


1,044 


881 


708 

* These amounts are paid out of the deductions from performance-related payments in a. above. Share-based payments awards amount to approximately 50% of the total, the balance being paid in cash

c.   Employee long-term incentive plan - interim arrangements

Employees who fall outside of the arrangements at b. above, i.e. those who provide services that were not part of the IMA arrangements, e.g. new staff including building management and development staff, are also paid bonuses on a similar basis to those paid to the employees qualifying at b. above. Until the expiry of the IMA and the introduction of the new remuneration arrangements, these arrangements are approved by the Board each year. Shares granted to these employees are determined to have a grant date of the date of approval by the Board of these awards. These shares vest two years after the end of the financial year to which they relate.  Employees who leave before the vesting date will lose entitlement to these shares. These amounts are amortised over the vesting period by reference to the fair value of the shares granted and after appropriate consideration of the potential impact of employee departures. Due to the low level of turnover in the Group to date, the fact that the relevant employees have mainly joined within the last year, and the likely immaterial amounts involved, the Directors have made no amendment to the amount provided for expected forfeiture of shares due to departures. When these shares vest they are assessed for tax purposes at the current market share price.

Employee long-term incentive plan - Interim arrangements

31 March 2018

Grant date: 24 May 2017



Financial year ended 31 March 2018


Financial year ended 31 March 2017


Share price

€ '000


Number of shares '000


€ '000


`Number of shares '000










Opening balance at start of financial year

            -  

 -  


 -  


 -  


 -  

Payment made during the financial year


 -  


 -  


 -  


 -  

Amounts provided during the financial year


78 


60 


 -  












Closing balance at end of financial year

       1.444

78 


60 


 -  


 -  

 

 Total shares awarded at the grant date 24 March 2017 were 0.1m. These vest on 31 March 2019.

A further 0.4m shares are expected to be granted and, if granted, will vest on 31 March 2020.

12. Finance income and expense

Accounting policy

Finance expenses directly attributable to the construction or production of investment properties which take a considerable length of time to prepare 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.

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

 

 

Financial year ended 31 March 2018

€'000

 

Financial year ended 31 March 2017

€'000

Interest income on cash and cash equivalents

7


10

Effective interest expense on borrowings

(6,243)


(5,671)

 

(6,236)


(5,661)

 

Interest costs capitalised in the financial year were €2.0m (31 March 2017: €0.9m) 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 from borrowings.

13. Income tax expense

Accounting policy

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except insofar as it applies to business combinations or to items recognised in other comprehensive income.

Current tax:  current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. 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 a Group's Residual Business that is, its non-property rental business.

 

Financial year ended 31 March 2018

€'000

 

Financial year ended 31 March 2017

€'000

Income tax on residual income

21

 

342

Tax on the disposal of non-core assets

-

 

28

Under provision in respect of prior periods

10

 

80

Income tax expense for the financial year

31

 

450

 

Reconciliation of the income tax expense for the financial year



Financial year ended 31 March 2018


Financial year ended 31 March 2017



 €'000


 €'000






Profit before tax


107,132 


119,036 






Tax charge on profit at standard rate of 12.5%


13,392 


14,880 

Non-taxable revaluation surplus


(10,172)


(13,016)

REIT tax-exempt profits


(3,220)


(1,511)

Other (additional tax rate on residual income)


 

21 


 

17 

Under provision in respect of prior periods


 

10 


 

80 






Income tax expense for the financial year

31 


450 

 

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



 

 

14. Dividends

Accounting policy

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 at the AGM.

 



Financial year ended 31 March 2018

€'000

Financial year ended 31 March 2017

€'000

 

Interim dividend for the financial year ended 31 March 2018 of 1.1 cent per share (31 March 2017: 0.75 cent per share)


7,616

5,141

Proposed final dividend for the financial year ended 31 March 2018 of 1.9 cent per share1 (31 March 2017: 1.45 cent per share)


             13,254

10,040

1An estimated 697.6m shares are entitled to the dividend

The Board has proposed a final dividend of 1.9 cent per share (31 March 2017: 1.45 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 3 August 2018. All of this proposed final dividend of 1.9 cent per share will be a Property Income Distribution ("PID") in respect of the Group's tax-exempt property rental business (31 March 2017: 1.45 cent). The total dividend, interim paid and final proposed for the financial year ended 31 March 2018 is 3.0 cent per share (31 March 2017: 2.2 cent per share) or €20.9m (31 March 2017: €15.2m).

Under the REIT regime, the Company is required to distribute a minimum of 85% of the Group's property rental business income. The actual percentages are shown below:

 

Financial year ended 31 March 2018


Financial year ended 31 March 2017


€'000


€'000

Profit for the period

                   107,101


                    118,586

Less gains and losses on investment properties

                   (87,802)


                  (103,525)

Add back other losses

                              41


                               35


 

 

 

Property income of the Property Rental Business

                     19,340


                      15,096


 

 

 

85% thereof

                     16,439


                      12,832


 

 

 

Total dividends

                     20,870


                      15,181


 

 

 

% of property income to be distributed

108%


101%

 



 

 

15. Earnings per share

There are no convertible instruments, options, or warrants on Ordinary Shares in issue as at the financial year ended 31 March 2018. However, the Company has established a reserve of €8.8m (31 March 2017: €9.5m) which is mainly for 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 (note 11). It is estimated that approximately 6.2m Ordinary Shares (31 March 2017: 7.6m shares) will be issued in total, 6.2m of which are provided for at 31 March 2018 and a further 0.4m which will be recognised over the next two years. Details on share-based payments are set out in note 11. The dilutive effect of these shares is disclosed below.

The calculations are as follows:

Weighted average number of shares


31 March 2018


31 March 2017



 '000


 '000

Issued share capital at beginning of financial year

685,452 


681,251 

Shares issued during the financial year


6,895 


4,201 






Shares in issue at end at financial year end

692,347 


685,452 






Weighted average number of shares


688,900 


683,351 

Estimated additional shares due for issue for long-term incentive plan/ performance fee

6,599 


7,603 

Diluted number of shares


695,499 


690,954 

 

The estimated additional shares are calculated as follows:


Financial year ended 31 March 2018


Financial year ended 31 March 2017


'000


'000





Share-based payments due at financial year end (note 11)

6,183 


7,603 

Non-IMA awards granted post year end

416


 -  

Number of shares to be issued

6,599 


7,603 

 

Basic and diluted earnings per share (IFRS)

31 March 2018


31 March 2017



 €'000


 €'000






Profit/(loss) for the financial year attributable to the owners of the Company 

107,101 


118,586 








 '000


 '000

Weighted average number of ordinary shares (basic)

688,900 


683,351 

Weighted average number of ordinary shares (diluted)

695,499 


690,954 






Basic earnings per share (cents)


                              15.5


                            17.4

Diluted earnings per share (cents)


                              15.4


                            17.2

 

 

EPRA earnings per share and Diluted EPRA earnings per share'

31 March 2018


31 March 2017



€ '000


€ '000






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

107,101 


118,586 

Exclude:





Gains and losses on investment properties


(87,802)


(103,525)

Profit or (loss) on disposals of non-core assets


 -  


(43)

Income tax on profit or loss on disposals


 -  


(30)

Fair value of derivatives


104 







EPRA earnings


19,403 


14,989 



 '000


 '000

Weighted average number of ordinary shares (basic)

688,900 


683,351 

Weighted average number of ordinary shares (diluted)

695,499 


690,954 

EPRA earnings per share (cent)


                                2.8


                              2.2

Diluted EPRA earnings per share (cent)


                                2.8


                              2.2

1EPRA Earnings per share are an alternative performance measure and are calculated in accordance with the EPRA Best Practice Recommendations Guidelines November 2016. Further information is available in the Supplementary information section at the end of this statement.

 

 

16. IFRS and EPRA NAV per share

Accounting policy

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: November 2016.

The EPRA NAV 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.



31 March 2018


31 March 2017



 €'000


 €'000

IFRS net assets at end of financial year


1,111,730


1,013,852






Ordinary Shares in issue


692,347


685,452






IFRS NAV per share (cents)


160.6


147.9

Ordinary Shares in issue


692,347


685,452

Estimated additional shares for performance-related payments

6,599


7,603

Diluted number of shares


698,946


693,055






Diluted IFRS NAV per share (cents)


159.1 


146.3 








31 March 2018


31 March 2017



 €'000


 €'000

IFRS net assets at end of financial year


1,111,730


1,013,852

Net mark to market on financial assets


345


117

EPRA NAV


1,112,075


1,013,969






EPRA NAV per share (cents)


159.1 


146.3 

 

The Company has established a reserve of €8.8m (31 March 2016: €9.5m) against the issue of 6.2m Ordinary Shares relating to shares due to issue for payments due to the Vendors of the Investment Manager and employees as detailed in note 11.

 

Section 3 -  Tangible assets

This section contains information on the Group's investment properties and other tangible assets. All investment properties are fully owned by the Group. The Group's investment properties are carried at fair value and its other tangible assets at depreciated cost except for land and buildings which are adjusted to fair value.

17. 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(e) and 2(f).

The valuations of investment properties and investment properties under development are prepared in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). 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 12.

In accordance with the Group's policy on revenue recognition (note 5), the value of accrued income in relation to the recognition of lease incentives under operating leases over the term of the lease is adjusted 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.

At 31 March 2018



Office Assets

Office Development Assets

Residential Assets

Industrial Assets

Total

Fair value category


Level 3

Level 3

Level 3

Level 3

Level 3



Group

Group

Group

Group

Group



 €'000

 €'000

 €'000

 €'000

 €'000








Carrying value at 31 March 2017


869,748 

168,042 

116,429 

13,168 

1,167,387 

Additions:






   

Property purchases


32,075 

 -  

923 

6,160 

39,158 

Development and refurbishment expenditure


12,250 

36,953 

815 

167 

50,185 

Revaluations included in income statement


29,875 

38,405 

14,792 

(1,695)

81,377 

Disposals:






  

Sales1


(26,990)

 -  

(2,400)

 -  

(29,390)

Transferred between segments2


100,979 

(108,900)

7,921 

 -  

 -  








Carrying value at 31 March 2018


1,017,937 

134,500 

138,480 

17,800

1,308,717 

1 The Chancery Building, Hanover Street East and 11 Lime Street were sold during the year, generating €6.4m in gains over carrying values.

22WML (formerly the Hanover Building) was transferred from "Office Assets" to "Office Development Assets" as re-development commenced in the period. 1WML and Hanover Mills Apartments were completed during the period and moved from "Office Development Assets" to "Office Assets" and "Residential Assets", respectively.

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



Group

Group

Group

Group

Group



 €'000

 €'000

 €'000

 €'000

 €'000

Carrying Value at 31 March 2016


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)

Transferred between segments1


126,650 

(126,650)

 -  

 -  

 -  








Carrying Value at 31 March 2017


869,748 

168,042 

116,429 

13,168 

1,167,387 

11 Cumberland Place development which was completed in September 2016.

 

The valuations used to determine fair value for the investment properties in the consolidated financial statements are determined by C&W, the Group's independent Valuer, and are in accordance with the provisions of IFRS 13. C&W 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) to the consolidated financial statements, 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 appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). 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 2018, 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 summarises 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.

In valuing the Group's investment properties, the Directors have applied a reduction of €6.8m (31 March 2017: €4.1m) to the Valuers' 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 €2.0m of financing costs were capitalised in relation to the Group's developments and refurbishments (31 March 2017: €0.9m). No other operating expenses were capitalised during the financial year.

 

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


Changes in the fair value technique during the financial year

Office assets

1,018

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

Exceptions to this:

Harcourt Square is valued on an investment basis until the end of the lease and on a residual basis thereafter at 31 March 2018. The present value of the residual land value was added to the investment value of the existing income.


No change in valuation technique.

At 31 March 2017, 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 existing blocks. The whole property is now valued on a residual basis when the lease expires.

Office development assets

135

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"): this includes, 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 in valuation technique.

However: the following properties changed the method applied during the period:

-       The office element at 1SJRQ, which is nearing completion, has been valued on an investment basis using market rental values capitalised with a market capitalisation rate, from which remaining capital expenditure has been deducted.

-       1WML was completed during the year and transferred to the office segment. Hanover Mills apartments, part of the 1WML development, were moved to the residential segment on completion.

-       2WML (formerly the Hanover Building), where a redevelopment has commenced, was transferred into this segment and is valued on a residual basis.

Residential assets

138

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


No change in valuation technique apart from Cannon Place which was previously valued on a break-up basis and is now valued on an investment basis reflecting the highest and best use.

Industrial assets

  18

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


The technique has changed in relation to the Gateway complex, the Group's only industrial property. This is now valued on a price per acre basis. Early stage plans are in place to redevelop in the future and this approach reflects the highest and best use of this property.

 

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 2018


Financial year ended 31 March 2017


€'000


€'000





Valuation per Valuers' certificate

1,320,581 


1,175,926 





Owner occupied (note 18)

(5,029)


(4,473)

Rental incentives adjustment1

(6,835)


(4,066)





Investment property balance at financial year end

1,308,717 


1,167,387 

 

1.Rental 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 2017, 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 therefore observable and not 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 2018. 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 2018


Market value

 Estimated rental value € per sq. ft. 

Equivalent yield %


€ '000

 Low

 High 

Low

High







Office

1,017,937

€20.00psf

 €60.00psf

4.56%

7.17%

Office development

134,500

€30.00 psf

€58.00 psf

4.75%

5.25%

Residential *

138,480

€19,800 pa

€ 31,800 pa

5.20%

6.43%

Industrial

17,800

€5.5 psf

€5.5 psf

7.45%

7.45%







* Average ERV based on a two-bedroom apartment

31 March 2017


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 based on a two-bedroom 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 2018, the Group's investment property portfolio would increase or decrease in value approximately €60m (31 March 2017: €57m). A 25bp increase in equivalent yields would decrease the value of the portfolio by €69m (31 March 2017: €62m) and a 25bp decrease results in an increase in value of €78m (31 March 2017: €68m).

31 March 2018

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

42.2 

(42.2)

(52.5)

59.6 

Office development

10.0 

(10.0)

(10.4)

11.7 

Residential

7.0 

(6.9)

(5.7)

6.3 

Industrial

0.5 

(0.6)

(0.4)

0.4 

Total

59.7 

(59.7)

(69.0)

78.0 

 

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 

 

18. Property, plant and equipment

Accounting policy

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 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

 

At 31 March 2018


Land and buildings1


Office and computer equipment


Leasehold improvements and fixtures and fittings


Total


 €'000


 €'000


 €'000


 €'000

Cost or valuation








At 1 April 2017

4,562 


96 


417 


5,075 

Additions

 -  


65 


173 


238 

Revaluation recognised in other comprehensive income

 

657 


 

-  


 

 -  


 

657 

At 31 March 2018

5,219 


161 


590 


5,970 









Depreciation








At 1 April 2017

(89)


(40)


(145)


(274)

Charge for the year

(101)


(64)


(120)


(285)

At 31 March 2018

(190)


(104)


(265)


(559)









Net book value at 31 March 2018

 

5,029 


 

57 


 

325 


 

5,411 

1The Group occupies 54% of the office space in its South Dock House property. This property was revalued as at 31 March 2018 and 31 March 2017 by the Group's Valuers and in accordance with the valuation approach described under note 17.

Land and buildings, 54% of South Dock House, was revalued at 31 March 2018 and 31 March 2017 by the Group's independent Valuers. They are measured at fair value at the financial year end using a yield methodology using market rental values capitalised with a market capitalisation rate. These fair value measurements use significant unobservable inputs. The inputs used are disclosed in the table below.

Valuation inputs


31 March 2018


31 March 2017

ERV per sq.ft.


€52.5


€52.5

Equivalent yield


5.0%


5.4%

 

 

 

At 31 March 2017


Land and buildings1


Office and computer equipment


Leasehold improvements and fixtures and fittings


Total


 €'000


 €'000


 €'000


 €'000

Cost or valuation








At 1 April 2016

2,725 


45 


243 


3,013 

Additions

1,651 


51 


174 


1,876 

Revaluation recognised in other comprehensive income

 

186 


 

 -  


 

-  


1

86 

At 31 March 2017

4,562 


96 


417 


5,075 









Depreciation








At 1 April 2016

(22)


(13)


(32)


(67)

Charge for the year

(67)


(27)


(113)


(207)

At 31 March 2017

(89)


(40)


(145)


(274)









Net book value at 31 March 2017

 

4,473 


 

56 


 

272 


 

4,801 

 

19. Non-current assets classified as held for sale

 



31 March 2018


31 March 2017



€'000


€'000

Balance at start of financial year


385 


3,921 

Recognised during the year


149 


 -  

Sold during the year


 -  


(3,536)






Balance at end of financial year


534 


385 

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 2017: €5.0m) 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.

The balance carried forward from 2017 contains two assets which remain from assets deemed not to be part of the Group's core business. There have been unforeseen delays in the sales of these assets but the Directors expect that the assets will be sold in the near future and are therefore retained as held for sale.



 

 

Section 4 -  Financing including equity and working capital

 

This part focuses on the financing of the Group's activities, including the equity capital, bank borrowings and working capital. It also covers financial risk management.

All of the Group's non-equity financing is currently via a revolving credit facility which is secured on the Group's investment properties. The majority of this debt has been hedged through derivatives to protect against rising interest rates.

Effective interest method: the Group uses the effective interest method of calculating the amortised cost of a debt instrument and of allocating interest income and expense 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.

20. Cash and cash equivalents

Accounting policy

Cash and cash equivalents includes cash at banks in current accounts, deposits held on 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.



31 March 2018


31 March 2017



 €'000


 €'000

Cash and cash equivalents


22,521 

 

18,148 

 

The management of cash and cash equivalents is discussed in detail in note 29. Please also refer to note 26 on the net debt calculations.  In addition, the Company holds funds in excess of its minimum capital requirement at all times.

21. Other financial assets

Accounting policy

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 cashflow 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.

 



31 March 2018


31 March 2017



 €'000


 €'000

Derivatives at fair value


88 

 

115 

Loans carried at amortised cost


152 

 

152 

Balance at end of financial year end - current

240 


267 

 

Derivatives at fair value are the Group's hedging instruments on its borrowings. The Group has hedged up to €244m of its revolving credit facility (31 March 2017: €100m) using a combination of caps and swaptions to limit the EURIBOR interest rate element of interest payable to 1%.

 

22. Trade and other receivables

Accounting policy

Trade receivables 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.



31 March 2018


31 March 2017



 €'000


 €'000

Non-current





Prepaid remuneration1


 -  


2,679 

Property income receivables


5,681 


4,066 

Other receivables


2,106 


1,791 

Balance at end of financial year - non-current

7,787 


8,536 

Current





Prepaid remuneration1


2,679 


4,444 

Receivable from loan redemptions


 -  


137 

Property income receivables


2,885 


4,538 

Prepayments


1,077 


789 

Recoverable capital expenditure


416 


 -  

Income tax refund due


102 


128 

VAT refundable


80 


72 

Balance at end of financial year - current

7,239


10,108 

Balance at end of financial year - total


15,026 


18,644 

1This consists of the balance of the payment to service providers relating to the internalisation transaction.

There are no amounts past due. The non-current balance is mainly non-financial in nature; €0.5m (31 March 2017: €0.7m) relates to amounts receivable from a tenant with the balance consisting of deferred income and expenditure amounts relating to the lease incentives and deferred lease costs. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (note 29). The Directors therefore consider that the carrying value of trade and other receivables approximates to their fair value.  



 

 

23. Issued capital and share premium

Accounting policy

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.


31 March 2018

31 March 2017


# of shares in issue


Share capital


Share premium


Total

# of shares in issue


Share capital


Share premium


Total


'000


€'000


€'000


€'000

'000


€'000


€'000


€'000

Balance at beginning of financial year

685,452 


68,545 


609,565 


678,110 

681,252 


68,125 


604,273 


672,398 

Shares issued during the financial year (see below)

 

6,895 


                  690


          7,896


          8,586

 

4,200 


 

420 


 

5,292 


 

5,712 
















Balance at end of financial year

692,347 


69,235 


617,461 


686,696 

685,452 


68,545 


609,565 


678,110 

 

Shares issued during the financial year as follows:

6,895,231 Ordinary Shares with a nominal value of €0.10 were issued during the period in settlement of performance-related fees giving a total recorded of €8.6m in settlement of fees due.

All of these shares were issued on 3 July 2017 and the associated costs were €14k.

Share capital

Ordinary Shares of 10 cents each:

 

31 March 2018

# of shares

31 March 2017

# of shares

Authorised

1,000,000

1,000,000

Allotted, called up and fully paid

692,347

685,452

In issue at end of financial year

692,347

685,452

 

There are no shares issued which are not fully paid.

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 2018 amounted to €8.8m at the financial year end (31 March 2017: €9.5m) and are all payable in shares (note 11). A further 6.2m shares are expected to be issued in relation to these payments.

24. Other reserves



31 March 2018


31 March 2017



 €'000


 €'000






Property revaluation


1,166 

 

509 

Cash flow hedging


(329)

 

(217)

Other reserves


8,783 

 

9,467 

 





Balance at end of financial year

 

9,620 

 

9,759 

 

a.   Properties revaluation reserve



31 March 2018


31 March 2017



 €'000


 €'000






Balance at beginning of financial year


509 

 

323 

Increase arising on revaluation of properties

657 

 

186 






Balance at end of financial year

 

1,166 

 

509 

 

The Group's headquarters are carried at fair value and the remeasurement of this property is made through other comprehensive income or loss (note 18). On disposal, that portion of the properties revaluation reserve relating to the premises sold will be transferred directly to retained earnings.

b.   Cashflow hedging reserve



31 March 2018


31 March 2017



 €'000


 €'000






Balance at beginning of financial year

(217)

 

(112)

Released to profit and loss


58 

 

 -  

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


(170)

 

(105)






Balance at end of financial year

 

(329)

 

(217)

 

The cashflow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cashflow 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 cashflow hedging reserve is reclassified to profit or loss 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:



31 March 2018


31 March 2017



 €'000


 €'000

Finance expense

 

104 

 

 

c.   Share-based payment reserve



31 March 2018


31 March 2017



 €'000


 €'000






Balance at beginning of financial year

9,467 


5,925 

Performance-related payments provided


7,902 

 

9,011 

Settlement of 2017 performance fees


(8,586)

 

(5,469)






Balance at end of financial year

 

8,783


9,467 

 

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 11.

25. Retained earnings and dividends on equity instruments



31 March 2018


31 March 2017



 €'000


 €'000






Balance at beginning of financial year

325,983 


218,040 

Profit for the financial year


107,101 


118,586 

Share issuance costs


(14)


(19)

Dividends paid


(17,656)


(10,624)






Balance at end of financial year

 

415,414 


325,983 

 

In August 2017, a dividend of 1.45 cent per share (total dividend €10m) was paid to the holders of fully paid Ordinary Shares.

In January 2018 a dividend of 1.1 cent per share (total dividend €7.6m) was paid to the holders of fully paid Ordinary Shares. The Directors propose a final dividend of 1.9 cent per share to be paid to shareholders on 3 August 2018. 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 €13.3m (note 14).

The Directors confirm that the Company continues to comply with the dividend payment conditions contained in the Irish REIT.

26. Financial liabilities

Accounting policy

The Group has a general borrowing facility secured by a floating charge over its assets. 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 (see note 12).

 



31 March 2018


31 March 2017



 €'000


 €'000

Balance at beginning of financial year


171,138 


72,724 

Bank finance drawn during the financial year


86,454 


97,877 

Bank finance repaid during the financial year


(39,674)


 -  

Interest payable


1,300 


537 






Balance at end of financial year


219,218 


171,138 

 



31 March 2018


31 March 2017



 €'000


 €'000

The maturity of non-current borrowings is as follows:




Less than one year


809 


192 

Between two and five years


218,409 


170,946 






Total


219,218 


171,138 

 

The Group seeks to leverage its equity capital to achieve higher returns within agreed limits.  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 loan-to-value ("LTV") ratio must remain under 50%.

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

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 six 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 29).

Net debt and LTV



31 March 2018


 31 March 2017



 €'000


 €'000






Financial liabilities


219,218 


171,138 

Add: arrangement fees


1,963 


3,718 

Deduct: accrued interest payable


(808)


(1,450)

Cash and cash equivalents


(22,521)


(18,148)

Amounts held for sinking funds and other prepaid income items

4,830 


-






Net debt at period end

 

202,682 


155,258 






Investment property at period end


1,308,717 


1,167,387 






Loan to value ratio


15.5%


13.3%

 

Cash is reduced by the amounts collected from tenants for deposits, sinking funds and similar arrangements as this expenditure is viewed as paid for the purposes of the above calculation.

 

27. Trade and other payables

Accounting policy

Trade payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.



31 March 2018


31 March 2017



 €'000


 €'000






Current





Investment property payable


5,118 


10,083 

Rent prepaid


7,313 


8,589 

Rent deposits and other amounts due to tenants

1,569 


2,269 

Sinking funds


2,053 


 -  

Deferred revenue


241 


1,067 

Trade and other payables


5,044 


2,496 

PAYE/PRSI payable


163 


138 






Balance at end of financial year

21,501 


24,642 

 

Cash is held against balances due for service charges prepaid and sinking fund contributions, €3.6m (31 March 2017: €1.0m), and rental deposits from tenants, €1.2m (31 March 2017: €1.2m). Sinking funds are monies put aside out of annual service charges collected from tenants as contributions towards expenditure on larger maintenance items that occur at irregular intervals, such as replacement of boilers, in buildings managed by Hibernia.  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.

28. Cashflow statement

Non-cash movements in operating profit


Note

31 March 2018


31 March 2017



 €'000


 €'000

Revaluation of investment properties

17