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Hibernia REIT PLC   -  HBRN   

Preliminary Results for the year to 31 March 2019

Released 07:00 23-May-2019

RNS Number : 9206Z
Hibernia REIT PLC
23 May 2019
 

 

 

PRELIMINARY RESULTS

For the financial year to 31 March 2019

 

23 May 2019

 

Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces results for the financial year to 31 March 2019. Highlights for the year:

Portfolio returns continue to outperform the Irish market, assisted by developments

·      12-month total property return1 of 11.6% vs MSCI Ireland Property Index (excl. Hibernia) of 7.5%

·      Portfolio value of €1,395.4m, up 7.9%2 in the year and 3.8%2 in H2 (developments up 27.3%2 in the year)

·      EPRA NAV3 per share of 173.3 cent, up 8.9% in the year and 4.2% in H2

·      Net rental income of €53.3m, up 16.6% on prior year (March 2018: €45.7m)

·      Profit before tax of €124.0m including revaluation surplus and disposal gains (March 2018: €107.1m)

·      EPRA EPS3 of 4.0 cent, up 40.4% on prior year (March 2018: 2.8 cent)        

Disciplined capital allocation: sales proceeds being reinvested or returned to shareholders

·      Sale of two properties for €100.3m4 (both modestly ahead of book value, with one completing after year end)

·      €40.0m4 reinvested in seven acquisitions, including the purchase of 98.3 acres of land at Newlands in late 2018

·      Share buyback programme launched in April 2019 with initial quantum of €25m

·      Capital reorganisation resolution to be proposed at AGM in July to enhance flexibility for capital management

Completing current developments and advancing longer-term pipeline

·      Two schemes delivered, totalling 172,000 sq. ft. of Grade A offices (>65% let), completing Windmill Quarter

·      2 Cumberland Place, 50,000 sq. ft. of new Grade A offices, on track to complete in H1 2020

·      Longer-term pipeline being expanded and progressed and now comprises six schemes

-     Newlands land holding increased to 143.7 acres through acquisitions

-     Office pipeline grown 6.5% to 538,000 sq. ft. after planning grants at Harcourt Square and Marine House

Growing income and WAULTs despite asset sales

·      Annual contracted rent roll now €57.6m, up 2.9% since March 2018, and in-place office portfolio WAULT to earlier of break/expiry of 7.5 years, up 2.7% in the year

-     EPRA like-for-like net rental growth3 of 7.6%

·      Reversionary potential of acquired in-place5 CBD offices of €3.6m and average period to capture of 2.1 years

-     Nine office rent reviews active at March 2019 representing €2.5m of passing rent and ERV of €4.6m

·      Office portfolio vacancy of 12%6 at March 2019 (March 2018: 3%6), following completion of 2WML and tenant break in the Forum: focus on reducing this in the near term

-       ERV of vacant office space: €8.0m

Low leverage: debt refinanced, extending term and diversifying sources of funding

·      Net debt3 at 31 March 2019 of €217.1m, LTV3 of 15.6% (March 2018: €202.7m, LTV3 15.5%)

·      Debt refinanced in December 2018, moving to unsecured structure and adding US private placement notes

-     Weighted average debt maturity at March 2019 of 5.4 years (March 2018: 2.7 years)

·      Significant funding capacity: cash and undrawn facilities of €178m, €143m net of committed capital expenditure

Dividend continues to grow as income increases

·      Final dividend of 2.0 cent per share bringing total for the year to 3.5 cent, up 16.7% (2018: 3.0 cent)

·      Further increase in rental income and reduction in costs (following expiry of IMA in Nov 2018) likely

 

 

Kevin Nowlan, Chief Executive Officer of Hibernia, said:

"Hibernia's portfolio returns continue to outperform the market and we are reporting another set of strong financial results, including increasing our net rental income and our full year dividend by over 16%.  We have made good progress strategically in the year, finishing two development schemes to complete the Windmill Quarter and agreeing a large letting to HubSpot.  We have also received new grants of planning for our future office developments at Marine House and Harcourt Square and successfully refinanced our debt.

"We have continued to recycle capital, selling assets worth over €100m and reinvesting €85m in new acquisitions and our developments, where we expect better future returns. In April 2019 we announced our intention to return €35m to shareholders, starting with a €25m share buyback.  This will continue our progress towards our leverage target and will be value-enhancing for shareholders.

"Demand for office and residential accommodation in Dublin remains high and the Irish economy continues to show a good rate of growth and strong job creation. With our substantial pipeline of accretive development opportunities, well-capitalised balance sheet with long-term funding, and experienced management team, Hibernia continues to be well positioned.  We will maintain our disciplined approach to capital allocation and in the near term we are focused on letting the vacant space in our portfolio and completing the outstanding rent reviews."

 

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 an Irish Real Estate Investment Trust ("REIT"), listed on Euronext Dublin and the London Stock Exchange. Hibernia owns and develops property and specialises in Dublin city centre offices.

The results presentation will take place at 9.00 am today, 23 May 2019: a conference call facility will be available to listen to the presentation live using the following details:        

Ireland dial-in: +353 (0)1 691 7842
UK dial-in:  +44 (0)20 3936 2999    
United States dial-in:  +1 (0)1 845 709 8568
All other locations: +44 (0) 20 3936 2999
Access Code: 241734

 

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 strong results, with our developments and residential assets again performing particularly well. The total property return of our portfolio was 11.6% for the year, outperforming our benchmark, the MSCI Ireland All Assets Index (excluding Hibernia), which returned 7.5%. EPRA NAV per share grew by 8.9% to 173.3 cent and we are proposing a final dividend of 2.0 cent per share, taking our total dividend for the year to 3.5 cent, an increase of 16.7% over the prior year.

Growing economy and favourable market conditions persist

Despite the uncertainty caused by Brexit, Ireland continues to have one of the best performing economies in the euro area and foreign direct investment remains high. Numbers in employment are at record levels and there is strong occupier demand, especially from the TMT sector and also for larger lettings. Dublin office take-up set a new record in 2018 and remained above trend in Q1 2019. The overall vacancy rate in Dublin at March 2019 was 5.4% and the Grade A vacancy rate in Dublin's city centre, where c. 85% of Hibernia's portfolio is located, was 4.5% at the same date. The supply of new offices in the city centre continues to be relatively constrained, which is helping support rents and in the residential market rent levels are rising. On a like-for-like basis our office portfolio grew 3.7% in value (excluding developments) and our residential portfolio grew 9.8%.

Disciplined allocation of capital with sales proceeds reinvested or returned to shareholders

Consistent with our strategy of selling assets where we expect forward returns to be below our targets and reinvesting in opportunities that we expect to enhance our returns, we disposed of New Century House and 77 Sir John Rogerson's Quay ("77SJRQ") for €100.3m in the year and reinvested €40.0m in seven acquisitions, most notably the purchase of 98.3 acres of land at Newlands. We also invested €44.8m in capital expenditure on our development schemes.

In order to maintain progress towards our leverage targets (see further details below), we have announced our intention to return the €35m sales proceeds from 77SJRQ to shareholders and we commenced a €25m on-market share buyback in April 2019. We also intend to undertake a capital reorganisation to enhance our flexibility for future capital management through converting a substantial amount of our share premium into distributable reserves and will be seeking approval from shareholders for this at the AGM on 31 July 2019.

De-risking developments and advancing pipeline of future schemes      

We significantly de-risked our current development programme with the completion of 1 Sir John Rogerson's Quay ("1SJRQ") and 2 Windmill Lane ("2WML") in March and February 2019, respectively, delivering 172,000 sq. ft. of Grade A offices and 19,000 sq. ft. of retail/leisure space and generating a profit on cost of over 70%. As at 31 March 2019 over 65% of this space had been taken, following the letting of 1SJRQ to HubSpot. The completion of 1SJRQ and 2WML finishes the Windmill Quarter, our first cluster, which now comprises six adjacent buildings in the South Docks and c. 400,000 sq. ft of offices plus further ancillary space and communal facilities. Our development at 2 Cumberland Place, which will deliver 50,000 sq. ft. of new Grade A office space, remains on track to complete in the first half of 2020.

We have also made good progress on our pipeline of future schemes, obtaining new grants of planning permission for office developments at Harcourt Square and Marine House and growing our mixed-use schemes through the acquisition of a further 98.3 acres of land at Newlands (Gateway) and 3.8 acres at 129 Slaney Road. In total our four office schemes can deliver 538,000 sq. ft. of office space post completion and we now own 147.5 acres of land with potential for mixed-use schemes, 143.7 acres of which is at Newlands.

Income and WAULT increasing despite asset sales and growing EPRA earnings and dividend

We agreed new leases and rent reviews totalling €7.8m in the year or €5.8m net of lease expiries and surrenders. The net sales made in the year reduced contracted rent by €4.2m meaning overall contracted rent at 31 March 2019 grew 2.9% to €57.6m and our office weighted average unexpired lease term ("WAULT") to the earlier of break or expiry grew 2.7% to 7.5 years. Contracted rent from our completed office developments of €27.5m now exceeds the €22.9m of contracted rent from office assets we acquired with income.

EPRA earnings grew 41.6% to €27.5m (4.0 cent per share) for the financial year and the Board has proposed a final dividend of 2.0 cent per share, bringing the dividend for the year to 3.5 cent, up 16.7% on the prior year and representing a pay-out ratio of 89% of EPRA earnings. We see potential for further growth as we let our committed developments and vacant space (ERV: €10.8m), capture the €3.7m of reversionary potential in the portfolio (most of which will come in the next 2.1 years), and from our lower cost structure following the end of the IMA in November 2018.

Debt refinanced, progress towards leverage target expected

We successfully refinanced our debt in December 2018, moving to a fully unsecured structure and agreeing our first non-bank funding in the form of €75m of seven and 10-year US private placement notes. While the quantum of our facilities has remained broadly unchanged, the refinancing significantly extended the average maturity of our debt from 1.9 years to 5.7 years as at December 2018 (March 2019: 5.4 years) and the unsecured structure ensures we have access to the widest possible range of funding options in future.

As at 31 March 2019 net debt was €217.1m (March 2018: €202.7m) and the loan to value ratio was 15.6% (March 2018: 15.5%). While development and acquisition expenditure in the year was €84.8m, this was largely countered by the net sales proceeds received of €65.0m. A further €35.3m was received after the year end from the sale of 77SJRQ (contracted in March 2019) which we have committed to return to shareholders. We expect further progress towards the lower end of our target 20-30% loan to value range as we have a further €34.5m of committed development expenditure, most of which will occur in the year to March 2020. Net of this committed development spend and capital returns we have cash and undrawn facilities of €143m available.

Positive outlook

Market conditions remain favourable, with robust economic growth and continued foreign direct investment leading to strong demand for office space, while supply of new offices in central Dublin remains limited. These same dynamics are also in evidence in the residential sector. We are positive on our prospects: we have a talented team, a portfolio with near- and longer-term potential, and flexible, low cost funding available to support our plans.

Kevin Nowlan, Chief Executive Officer

Market review

General economy

Ireland had another year as one of the top performing economies in Europe in 2018, with headline GDP growth of 6.7% versus 1.8% for the euro area (source: CBI, European Commission). Core domestic demand, which is regarded as a better measure of the strength of the economy, grew by 4.5% in 2018. There have been some modest downgrades to growth expectations recently, largely on account of the uncertainty around Brexit, but nonetheless economic momentum is expected to remain strong with growth in core domestic demand forecast to be 4.5% in 2019 and 3.7% in 2020 (source: Goodbody). The number of people in work reached a new high of 2.3m in December 2018, albeit with some moderation in future growth expected as the pool of available labour diminishes (source: CSO, CBI) and the same trends are being seen in Dublin, where the unemployment rate has fallen below 5% (to 4.9% in Q4 2018) for the first time since late 2007 (source: Dublin Economic Monitor). As the labour market has tightened wage growth has started to pick up, with salary inflation of 3.0% expected in 2019 and overall inflation of 0.9% expected (source: Department of Finance). In the construction sector tender prices are expected to increase by 3.4% in the first half of 2019 (source: SCSI).

With tax revenues ahead of expectations, the Government achieved a balanced budget in 2018 for the first time in over a decade and a budget surplus of 0.2% is forecast in 2019 (source: CSO, Department of Finance). National debt to GDP was 64.8% at the end of 2018 and is forecast to reduce to 61% by the end of 2019, marking near achievement of the target of 60% as set down by the EU (source: Department of Finance). The investment programme announced by the Government as part of Project Ireland 2040 has seen projected capital spending for 2019 rise to €7.9bn, well ahead of the initial €5bn expected in the 2016 Capital Investment Plan (source: Goodbody), and the National Broadband Plan, to deliver high-speed fibre capacity to the whole country, has just been announced at an expected cost to the State of €3bn.

Despite its current momentum, the open nature of Ireland's economy means it is particularly exposed to events beyond its borders and key risks include a disorderly Brexit, trade wars and an economic slowdown in the US. At present, foreign direct investment ("FDI") in Ireland remains high: 4,700 IDA-sponsored jobs have been created thus far in 2019, equivalent to 63% of the 2018 total which was itself a strong year, and Dublin has accounted for 80% of these new jobs (source: Davy, IDA).

Irish property investment market

In the 12 months to 31 March 2019 the MSCI Ireland Property Index "All Benchmark" (the "Index") excluding Hibernia delivered a total return of 7.5% (March 2018: 7.7%, including the 4% increase in commercial stamp duty introduced in October 2017). The industrial sector was the top performer with a total return of 12.9% followed by the office sector at 8.5% and "other" - which includes multi-family residential - at 7.3% (March 2018: 7.8%, 9.7% and 7.7%, respectively). Yields have remained broadly constant in the office sector since late 2017, with the agent consensus between 4% and 4.25%, though some suggest these are trending tighter. PRS yields are between 3.85% and 4%, down from 4.25% at March 2018, and are trending tighter as well (source: Cushman & Wakefield, CBRE).

2018 was another strong year for the investment market as total spend reached a record €3.6bn and a number of large transactions completed. The rate moderated slightly in Q1 2019, amounting to €0.6bn, and total investment volumes for 2019 are expected to reach €2.5bn but could be considerably higher depending on the outcome of the Green REIT sales process (source: JLL). The office and residential sectors comprised the majority of investment volumes in 2018 at 40% and 30%, respectively, and Dublin continues to be the principal location within Ireland, accounting for 85% of volumes (source: Knight Frank).

Top 10 office investment transactions (12 months to March 2019)

Building

Price

Price (psf)

Buyer

Buyer nationality

Dublin office swap, D1&D2

€160m

n/a

IPUT/State Street

Ireland/USA

Charlemont Exchange, D2

€144m

€1,171psf

Vestas

South Korea

No. 2 Dublin Landings, D1

€107m

€1,118psf

JR AMC

South Korea

The Beckett Building, D3

€101m

€532psf

Kookmin Bank

South Korea

Belfield Office Park, D4

€90m

€308psf

Spear Street Capital

USA

New Century House, D1

€65m

€818psf

Credit Suisse

Switzerland

The Infinity Building, D7

€57m

€452psf

Credit Suisse

Switzerland

The Sharp Building, D2

€56m

€1,260psf

Credit Suisse

Switzerland

The One Building, D2

€50m

€1,100psf

BNP REIM

France

77SJRQ, D2

€36m

€1,040psf

Patrizia

Germany

Source: Knight Frank

Office occupational market

The Dublin office market set a new record of 3.9m sq. ft. of take-up in 2018, up 8% on 2017, which was the previous record. The city centre continues to account for the majority of the take-up, representing 72% of lettings by area in 2018 (source: Knight Frank). Net take-up was 71% of the headline figure in 2018 (2017: 55%), suggesting robust underlying occupier demand. This demand has continued into 2019 with 1.4m sq. ft. taken up in the first quarter, equivalent to 35% of 2018's full-year total (source: Knight Frank). The trend towards large leasing deals has also persisted, with lettings greater than 50,000 sq. ft. accounting for 48% of take-up in 2018 and 79% of take-up in the quarter ended March 2019 (source: Knight Frank). The amount of space accounted for by lettings under 50,000 sq. ft. has remained relatively consistent with 1.9m, 1.6m and 2.0m sq. ft. take-up in 2016, 2017 and 2018, respectively (source: CRBE, Knight Frank).

Top 10 office lettings (12 months to March 2019)

Tenant

Industry

Building

Area (sq. ft.)

% of total take-up

Facebook

TMT

Bankcentre, D4

870k

19%

Salesforce

TMT

Spencer Place, D1

430k

10%

Google

TMT

Bolands Quay, D2

221k

5%

Central Bank

State

4 & 5 Dublin Landings, D1

201k

4%

OPW

State

The Distillers Building, D8

182k

4%

Facebook

TMT

Nova Atria South, D18

174k

4%

WeWork

Serviced offices

Charlemont Exchange, D2

121k

3%

HubSpot

TMT

1SJRQ, D2

112k

3%

IDA

State

Three Park Place, D2

112k

2%

WeWork

Serviced offices

2 Dublin Landings, D2

100k

2%

Source: Knight Frank

The technology, media and telecommunications ("TMT") sector remains the biggest source of demand accounting for 52% of 2018 take-up and 56% in Q1 2019 (2017: 51%), followed by co-working at 13% (Q1 2019: 1%). State bodies comprised 7% of take-up in 2018 and 31% in Q1 2019 (source: Knight Frank). As noted in previous results statements, we believe US technology companies redirecting investment that may otherwise have gone to the UK ("latent Brexit") are having a bigger impact on the Dublin office market than relocations from the UK. The serviced office sector is also growing strongly and as of Q1 2019 represents 2.9% of Dublin's CBD office stock, excluding period offices, up from 1.8% during the same quarter last year. By comparison, the sector's share of office stock in London and Paris is 5.6% and 2.1%, respectively (source: Knight Frank).

The overall Dublin office vacancy rate at March 2019 was 5.4% (March 2018: 6.2%) and the Grade A vacancy rate in the city centre where all of Hibernia's office portfolio is located was 4.5% at March 2019 (March 2018: 3.7%) (source: Knight Frank). CBRE notes that while prime city centre rents have remained stable at €65psf to end-April 2019, rental values in the suburbs have increased in recent months. Looking ahead, active demand remains strong at 4.2m sq. ft. at the end of March 2019 though it has reduced from 5.8m sq. ft. at the same time last year following the satisfaction of several large requirements during 2018 (source: Cushman & Wakefield).

 

 

Office development pipeline           

The table below sets out delivery since 2017 and our expectations for upcoming supply across Dublin's city centre and for the whole of Dublin by year. Overall, we expect a total of 11.2m sq. ft. of gross new space between 2017 and 2022, of which 70% will be in the CBD.

Year

City centre supply

All Dublin supply

2017

0.9m sq. ft.

1.4m sq. ft.

2018

1.7m sq. ft.

2.1m sq. ft.

2019f

0.8m sq. ft. (66% pre-let)

1.6m sq. ft. (44% pre-let)

2020f

1.9m sq. ft. (45% pre-let)

2.4m sq. ft. (38% pre-let)

2021f

1.1m sq. ft. (36% pre-let)

1.9m sq. ft. (50% pre-let)

2022f

1.3m sq. ft. (0% pre-let)

1.8m sq. ft. (0% pre-let)

Total 2017-22

7.8m sq. ft.

11.2m sq. ft.

Source: Knight Frank/Hibernia

The pre- and mid-letting market remains active, with 47% of office stock under construction in the city having been let or reserved as at April 2019 (source: CBRE): recent lettings include the pre-let of the 160,000 sq. ft. Distillers Building in Smithfield to the OPW and Amazon's agreement to let 176,000 sq. ft. of space in the 2 Charlemont Square development.

Residential sector

Housing delivery continues to increase, with 18,000 new homes delivered in 2018 (versus 14,000 in 2017) and 60% of these delivered in the Dublin area. The same trend was exhibited in Q1 2019, as 4,275 units were completed nationally, up 23% year-on-year (source: CSO, Goodbody). However, this increased output accounts for only half of the estimated annual demand in the market (source: Goodbody). Completions are expected to grow further in 2019 and 2020, to 24,000 and 28,000 units, respectively, following increased planning permissions granted over the past year (source: Goodbody, CBI). House price inflation has moderated somewhat, standing at 4.3% annually on a national basis and at just 1.4% annually in Dublin at February 2019 (source: CSO).

While the realised and forecast increases in housing supply are welcome, delivery of affordable units remains a key concern. 2018 delivery suggests an excess of new homes at higher price ranges when compared to the number of people who can afford to buy them and, conversely, a deficit at more affordable prices (source: Goodbody). Apartment delivery continues to lag behind other housing types: planning for over 10,000 apartment units was approved in the 12 months to Q3 2018, a multiple of almost four times the actual delivery in 2018 (source: Goodbody). However, the removal of uncertainty around planning restrictions and heights in late 2018 is likely to spur greater delivery in 2019 and the build to rent sector is expected to be a significant contributor to supply: planning for a further 10,000 units has been applied for since the beginning of Q4 2018 (source: Goodbody). Strong growth in apartment delivery of 29% year-on-year in Q1 2019, albeit from a low base, suggests that apartment delivery can be a key contributor to housing supply in the coming years (source: CSO, Goodbody).

Despite increases in supply and a moderation in growth in capital values, there remains a large amount of international and domestic institutional capital looking to invest in the residential sector, particularly in the private rented sector ("PRS"). CBRE's latest research suggests that as much as €6.3bn is now targeting the sector in Ireland, up from €5.3bn this time last year.

 

Business review

Disposals and acquisitions

While we have continued to successfully recycle capital into new opportunities we have been net sellers in the financial year, generating net sales proceeds of €60.3m (€60.8m excluding transaction costs) (March 2018: €-3.6m) from the disposal of New Century House and 77SJRQ and several acquisitions, most notably at Newlands. Since the end of the financial year we have invested a further €1.5m in two acquisitions of assets adjacent to our existing properties.

Disposals

·      New Century House, IFSC: the sale of the 80,000 sq. ft. office building was agreed in July 2018 and completed in September 2018. The price of €65.3m was modestly ahead of the March 2018 valuation and equated to a net initial yield of 4.0%. The ungeared IRR for Hibernia since acquisition in 2014 was in excess of 12%

·      77SJRQ, South Docks: contracts were exchanged for the sale of the 34,400 sq. ft. office building for €35.5m in March 2019 and the sale completed in May 2019. The sales price was modestly ahead of property's December 2018 valuation and reflected a net initial yield of 4.6%. Hibernia's ungeared IRR on the property exceeded 15%

Acquisitions

·      129 Slaney Road, D11: the 62,000 sq. ft. industrial building on a 3.8 acre site in the Dublin Industrial Estate was bought for €4.8m in July 2018. The property is fully let, producing rent of €0.5m per annum, with a WAULT of 8.5 years to expiry and a WAULT to break of 1.5 years at 31 March 2019. It has potential for a future mixed-use development (see further details in the developments and refurbishments section below)

·      50 City Quay, South Docks: the 4,500 sq. ft. office building, which neighbours 1SJRQ and faces onto the River Liffey, was acquired for €2.7m in July 2018. The property expanded the Windmill Quarter to six buildings with c. 400,000 sq. ft. of office accommodation as well as retail and leisure facilities

·      Newlands land, D24: an additional 98.3 acres of agricultural land at Newlands was acquired in two acquisitions in August and November 2018. The initial consideration was €28.7m, with possible deferred consideration equating to a 44% share of the market value of all lands upon rezoning, less the initial consideration paid to one vendor of €27.0m. Following these acquisitions Hibernia's property interest in the Newlands area totals 143.7 acres (see further details in the developments and refurbishments section below)

·      Other: during the year €1.0m was spent on three small, "bolt-on" acquisitions which provide potential synergies with properties already owned by Hibernia. Since the financial year end, a further €1.5m has been invested in two similar acquisitions.

 

Portfolio overview

As at 31 March 2019 the property portfolio consisted of 32 investment properties valued at €1,395m (March 2018: 32 investment properties valued at €1,309m), which can be categorised as follows: 

 

Value as at

March 2019

% of portfolio

Equivalent yield1

Passing rent

€'m

Contracted rent

€'m

ERV

€'m

1. Dublin CBD offices

Traditional Core

€444m

32%

4.9%2

€21.5m

€21.6m

€24.0m

IFSC

€207m

15%

4.7%

€8.3m

€8.3m

€11.0m

South Docks

€522m3

37%

4.5%

€13.7m

€20.5m

€26.7m

Total Dublin CBD offices

€1,173m

84%

4.7%2

€43.5m

€50.4m

€61.7m

2. Dublin CBD office development4

€16m

1%

-

-

-

€2.8m

3. Dublin residential5

€153m

11%

3.9%6

€5.9m9

€5.9m9

€7.0m10

4. Industrial/ land

€53m

4%

1.9%7

€1.2m

€1.3m

€1.0m

Total

€1,395m

100%

3.5%2,6,7,8

€50.6m9

€57.6m

€72.5m

1.        Yields on unsmoothed values and excluding adjustment for South Dock House owner-occupied space

2.        Harcourt Square, Clanwilliam Court & Marine House yields are calculated as the passing rent over the total value (after costs) which includes residual land value. Excludes Iconic Offices in Clanwilliam Court

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

4.        2 Cumberland Place

5.        Includes 1WML residential element (Hanover Mills)

6.        Net yields assuming 80% net-to-gross and purchaser costs as per C&W at  March 2019

7.        Current rental value assumed as ERV as these assets are valued on a price per acre basis except for Slaney Road which is valued on an income basis

8.        Excludes. all CBD office developments

9.        Residential rent on a net basis

10.     Net ERV assuming 80% net to gross (as per valuer assumptions)

The key statistics for the office element of our portfolio, which comprised 85% by value and 88% by contracted income at 31 March 2019 (March 2018: 88% and 89%, respectively), are set out below: contracted income from completed developments now exceeds that from our acquired in-place offices.

 

Contracted rent

ERV

WAULT to review 1

WAULT to break/expiry

% of rent upwards only

% of next rent review cap & collar

% of rent MTM 2 at next lease event

Acquired in-place office portfolio

€22.9m (€40psf)

€26.5m (€47psf)

2.1yrs

3.7yrs

18%

0%

82%

Completed office developments3

€27.5m (€53psf)

€27.6m (€54psf)

3.6yrs

10.6yrs

-

33%

67%

Whole in-place office portfolio

€50.4m (€47psf)

€54.1m (€50psf)

2.9yrs

7.5yrs

8%

18%

74%

Vacant in-place office

-

€7.6m (€51psf)

-

-

-

-

-

Committed office-unlet

-

€2.8m (€55psf)4

-

-

-

-

-

Whole in-place office portfolio (after vacancy)

-

€64.5m (€52psf)

-

-

-

-

-

1.        To earlier of review or expiry

2.        Mark-to-market

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

4.        2 Cumberland Place

 

Increasing portfolio income and extending unexpired lease terms continue to be key priorities. In spite of net asset sales and the exercise of a break option in the Forum, we have added €1.6m to contracted rent since 31 March 2018 through:

·      New office leases adding €7.1m (€6.9m excluding gym letting), with weighted average term certain of c.12 years

·      Rent reviews adding €0.7m (€0.4m from office rent reviews)

·      Net asset sales reducing office income by €4.2m and lease expiries and breaks reducing income by €2.0m


The in-place office portfolio vacancy rate was 12% by lettable area at 31 March 2019 (31 March 2018: 3%): for further details on the reasons for this move and the increase in rental income, please see asset management section below. 

 

 

Portfolio performance

In the financial year ended 31 March 2019 the portfolio value increased €99m or 7.9% on a like-for-like basis (i.e. excluding acquisitions, disposals and capital expenditure). In the year ended 31 March 2018 the portfolio value increased by €82m or 6.6% on a like-for-like basis.

 

Value at March 2018

Capex

Acquisitions 1

Disposals 2

Revaluation

Value at March 2019

L-f-L change

1. Dublin CBD offices

Traditional core

€436m

€1m

-

-

€7m

€444m

€7m

1.6%

IFSC

€261m

€2m

-

(€62m)

€6m

€207m

€6m

2.6%

South Docks

€3223

€2m

€3m

(€34m)

€21m

€522m3

€22m

7.6%

Total Dublin CBD offices

€1,019m

€5m

€3m

(€96m)

€34m

€1,173m

€35m

3.7%

2. Dublin CBD office development

€134m

€42m

-

-

€48m

€16m

€48m

27.3%

3. Dublin residential

€138m

-

€1m

-

€14m

€153m

€14m

9.8%

4. Industrial/
land

€18m

-

€36m

-

(€1m)

€53m

€2m

17.2%

Total

€1,309m

€47m

€40m

(€96m)

€95m

€1,395m

€99m4

7.9%4

1.        Including acquisition costs

2.        As at relevant valuation (smoothed) date (Mar-18 for New Century House and Sep-18 for 77 SJR). Total sales prices were €100.8m and net proceeds after sales costs were €100.3m

3.        Excludes the value of space occupied by Hibernia in South Dock House but Mar-19 includes reclassification of 1SJRQ and 2WML as CBD offices from office development

4.        €99m is "like-for-like" change on Mar-18 values and excludes gains/losses from acquisitions/disposals in the year to March 2019, e.g. acquisition of additional land at Newlands

 

The key individual valuation movements in the period were:

·      1SJRQ, South Docks: €33.3m/29% uplift driven by compression of the equivalent yield from 4.75% to 4.0% and an increase in the headline market rent from €56.19psf to €60psf following the completion of the development and the leasing of the entire office area

·      1WML, South Docks: €14.1m/10% uplift driven by the equivalent yield on the office building moving from 4.56% to 4.22% as the Windmill Quarter has been completed

·      2WML, South Docks: €13.9m/29% uplift as a result of the completion of the development during the year: the headline market rent increased from €53psf to €55.19psf and the equivalent yield compressed by 25bps from 5% to 4.85%

·      Block 3, Wyckham Point, D14: €9.7m/11% uplift driven by yield compression from 4.03% NIY to 3.79% NIY. The valuer's assessment of open market rent also increased by 7%

·      1 Cumberland Place, D2: €7.5m/6% uplift due to the movement of the equivalent yield on the building from 4.75% to 4.5%

 

 

 

Developments and refurbishments

Three development schemes were active in the year, of which two completed before year end. Capital expenditure on developments amounted to €44.8m (March 2018: €45.8m).

Schemes completed            
The two schemes completed delivered 172,000 sq. ft. of new and refurbished Grade A office space. Both are in the Windmill Quarter in Dublin's South Docks, Hibernia's first cluster of buildings, and their delivery marked the completion of development work in the Windmill Quarter. At 31 March 2019, over 65% of the space in the two schemes was let (see asset management section for further details). The schemes were:

·      1SJRQ: the development of 112,000 sq. ft. of new office space and 7,000 sq. ft. of retail space (food & beverage) was completed on budget in March 2019 delivering a profit on cost of >90%. The office accommodation is fully let and the building will be yielding 8.9% on cost upon lease commencement on 1 June 2019 (expected yield on cost of 9.2% when the food & beverage accommodation is let)

·      2WML: the refurbishment and extension of the building, which comprises 60,000 sq. ft. of office space and a 12,000 sq. ft. gym, was completed on budget in February 2019 and the gym has been let. The profit on cost at completion was >40% and the building is expected to deliver a yield on cost of 8.4% when fully let


Committed development schemes

2 Cumberland Place, D2, is our only scheme currently under construction: the basement works are now largely complete. The building remains scheduled to complete in the first six months of 2020. It will deliver 50,000 sq. ft. of new Grade A office space adjacent to 1 Cumberland Place, taking the total on the site to c. 180,000 sq. ft., and will have the potential either to link into the existing reception or to be separately accessed with the possibility to interlink certain floors with the existing building.

Please see further details on the committed development scheme below:

 

Sector

Total area post completion (sq. ft.)

Full purchase price

Est. capex

Est. total cost (incl. land)

ERV1

Office ERV1

Expected practical completion ("PC") date

2 Cumberland Place

Office

50k office

1k retail/café

€0m

€30m

€600psf2

€2.8m

€54.61psf

H1 2020

Total committed

 

50k office

1k retail/café

€0m

€30m

€600psf2

€2.8m

€54.61psf

 

1.        Per C&W valuation at 31 March 2019

2.        Office demise only

At 31 March 2019 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (110,000 sq. ft.) in 2WML and 2 Cumberland Place of €54.93psf and was assuming an average yield of 4.80% upon completion: based on these assumptions C&W expect a further €11m 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. €8m difference to the development profits, and a €2.50psf change in estimated rental value ("ERV") would result in a c. €6m difference. If current market conditions prevail, we would expect these yields to tighten once the buildings are completed and let.

Development pipeline        
We have split the Marine House scheme from Clanwilliam Court in the pipeline, given its likely different commencement date, and now have four office schemes in the pipeline which, if undertaken, would deliver up to an estimated 538,000 sq. ft. of high quality office space upon completion (a net increase over current areas of 260,000 sq. ft.): this figure has increased by 6.5% since 31 March 2018 due to the addition of 33,000 sq. ft. of extra space from grants of planning. In May 2019 we applied for planning permission for a 152,000 sq. ft. redevelopment scheme at Clanwilliam Court. Clanwilliam/Marine House and Harcourt Square both provide us with opportunities to create clusters of office buildings with shared facilities similar to the Windmill Quarter. In the longer term there is potential for mixed-use development schemes at Newlands (Gateway), where we now own 143.7 acres, and 129 Slaney Road, where we own 3.8 acres. In both cases, re-zoning will be necessary and so the timing of any future developments is uncertain at present.

At 31 March 2019 Cushman & Wakefield, the Group's valuer, had an average estimated rental value for three main schemes in the office development pipeline (497,000 sq. ft. of offices excluding Earlsfort Terrace) of €56.82psf and was assuming an average yield of 4.43% upon completion. Based on these assumptions and forecast capex of €260m (using current build costs including contingency but excluding effect of future tender price inflation) and assuming current market conditions, a further €167m of development profit (excluding finance costs) is expected to be realised through the completion and letting of these schemes. A 50-basis point movement in the average yield for the properties would make c. €55m of difference to the development profits, and a €5psf change in average estimated rental value ("ERV") would result in a c. €45m difference. 

Office

Sector

Current area

(sq. ft.)

Area post completion

(sq. ft.)

Full purchase price1

Comments

Marine House

Office

41k

49k

€29m

•    Planning granted December 2018 for 49k sq. ft.

•    Lower ground floor application may add approx. 1.5k sq. ft.

•    Vacant possession expected during 2020

Blocks 1, 2 & 5 Clanwilliam Court

Office

93k

141k office
11k ancillary

€54m

•    Redevelopment opportunity post-2021

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

•    Planning application lodged for 152k sq. ft. redevelopment

Harcourt Square

Office

122k
 

307k office
2k retail

€75m

•    Leased to OPW until December 2022

•    Site offers potential to create cluster of office buildings with shared facilities or a major HQ

•    Full 10-year planning grant for 309k sq. ft

•    Detailed building assessment underway by development team

One Earlsfort Terrace

Office

22k

28k

€20m

•    Current planning permission for two extra floors (6k sq. ft.), expiring July 2021

•    Potential for redevelopment as part of wider Earlsfort Centre scheme

Total office

 

278k

538k

€178m

 

Mixed-use

 

 

 

 

 

Newlands (Gateway)

 

143.7 acres

n/a

€48m2

•    Strategic transport location

•    Potential for future mixed-use redevelopment subject to re-zoning

129 Slaney Road

 

62k on

3.8 acres

n/a

€5m

•    Strategic transport location

•    Potential for future mixed-use development subject to re-zoning

Total mixed -use

 

147.5 acres

n/a

€53m

 

1.        Including transaction costs and capex spent to date

2.        Initial consideration

Asset management

Capital expenditure on maintenance items amounted to €1.8m in the year (March 2018: €2.4m). Contracted rent grew 2.9% to €57.6m (March 2018: €56.0m) as a result of:

·      Lettings and rent reviews adding €7.8m (see further details below)

·      Lease expiries and surrenders reducing contracted rent by €2.0m

·      Net property sales reducing contracted rent by €4.2m

 

At 31 March 2019 nine office rent reviews were active representing €2.5m of contracted rent with an ERV of €4.6m and the vacancy rate in the office portfolio was 12%, based on lettable area (March 2018: 3%). The principal reasons for the increase in vacancy rate were the completion of 2WML (60,000 sq. ft.) and the office tenant in Forum vacating the building (47,000 sq. ft.), both of which occurred just before 31 March 2019. Together, these two events added nine percentage points to the vacancy rate.

Summary of letting activity in the year

Offices:

·      Two new lettings totalling 113,000 sq. ft. and generating €6.9m per annum of incremental new rent. The weighted average periods to break and expiry for the new leases were 11.9 years and 19.9 years, respectively

·      One rent review was concluded over 12,000 sq. ft., adding a further €0.4m of rent per annum: this rent review was over 140% ahead of previous contracted rents and ahead of ERV

 

Retail:

·      The 12,000 sq. ft. gym in 2WML was let to Perpetua generating rent of €0.1m per annum, rising to €0.2m per annum by year three

Residential:

·      293 of the Company's 328 apartments are located in Dundrum and average rents achieved in new lettings in the year by the Company for two-bed apartments in Dundrum were €1,850 per month vs average two-bed passing rents of €1,831 per month

·      Letting activity and lease renewals at Dundrum generated incremental gross annual rent of €0.3m in the period (new leases signed on 73 apartments and leases renewed on 237 apartments)

·      All let units are subject to the rental cap regulations

 

Key asset management highlights  
1SJRQ, South Docks            
In November 2018 HubSpot agreed terms to occupy all 112,000 sq. ft. of office accommodation in the building on a 20-year lease, with 12 years term certain, commencing in June 2019. HubSpot will pay an initial rent of €6.8m (€59.75psf) per annum, commencing after a four-month rent free. As part of the letting, HubSpot, which also occupies 73,000 sq. ft. in One and Two Dockland Central, has agreed to extend the date of its break options in these buildings by three and a half years to coincide with those at 1SJRQ. Hibernia remains in discussions with various food and beverage operators regarding the 7,000 sq. ft. of retail space in the building.

2WML, South Docks           
In late 2018 Perpetua, a leading gym operator, agreed to let the ground floor, a 12,000 sq. ft. gym, at an initial rent of €0.1m per annum, rising to €0.2m per annum by year three, on a 10-year lease, with six years term certain. Discussions continue with potential occupiers for the 60,000 sq. ft. of office accommodation in the building which completed at the end of February 2019.

50 City Quay, South Docks
The 4,500 sq. ft. riverside office building, which occupies a prominent corner adjacent to the Windmill Quarter, was acquired vacant (see further details above). We are finalising plans for the refurbishment of the building.

Cannon Place, D4
The 16 residential units are vacant following the completion of remedial work which had to be carried out. We intend to retain the property and let the units.

Central Quay, South Docks
In late 2018, Daqri, which occupies the first floor (11,000 sq. ft.) and is paying rent of €0.6m per annum, served notice to exercise its break option and will vacate the property in June 2019. The remaining vacant space on part of the ground floor (5,000 sq. ft.) and the third floor (12,000 sq. ft.) continues to be marketed and talks are ongoing with potential occupiers.

Hardwicke House & Montague House, D2     
At 31 March 2019 there were seven rent reviews outstanding in the buildings, relating to 82,000 sq. ft. of office accommodation, with passing rents of €2.4m and ERVs of €4.3m. We expect the majority of these to conclude shortly.

Marine House, D2               
There are two rent reviews active, regarding a total of 4,300 sq. ft. of ground floor office space, which is let to WK Nowlan Property.

South Dock House, South Docks      
We are in discussions regarding the leasing of all 9,000 sq. ft. of the property to a party.

The Forum, IFSC  
Depfa Bank, which previously occupied all 47,000 sq. ft. of office accommodation along with 50 car parking spaces at an annual rent of €2.0m, vacated the building in March 2019 having previously exercised a break clause in its lease. Hibernia continues to consider options for the building and is in preliminary discussions with interested parties.

The Observatory, South Docks         
Riot Games, which occupies 44,000 sq. ft. across three floors in the building, has exercised a break option on part of its demise and will be vacating 8,000 sq. ft. in early July 2019 leading to a reduction in annual rent of €0.2m. We will seek to re-let the space when it becomes vacant. The remainder of the Riot Games demise, which is under-rented at present, will be subject to a rent review at 1 July 2019.

Windmill Quarter, South Docks        
With the completion of 1SJRQ and 2WML the Windmill Quarter has been finished and now comprises six adjacent buildings with c. 400,000 sq. ft. of offices and further ancillary space and communal facilities. As well as the individual building managers we have a dedicated manager for the Quarter and are introducing features for tenants such as a smartphone app, with updates and information, and music events.

Flexible workspace arrangement    
The flexible workspace arrangement with Iconic Offices ("Iconic") in 21,000 sq. ft. of Block 1 Clanwilliam Court is performing well, with all workstations (c. 90% of revenue from the arrangement) occupied and 77% of the available co-working memberships contracted as at 31 March 2019.

Other completed assets    
The remaining completed properties in the portfolio remain 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 2.1 years.

Financial review

As at

 

31 March 2019

31 March 2018

Movement

IFRS NAVPS

 

174.7c

160.6c

+8.8%

EPRA NAVPS1

 

173.3c

159.1c

+8.9%

Net debt1

 

 €217.1m

 €202.7m

 +7.1%

Group LTV1

 

15.6%

15.5%

+0.1pp

Financial period ended

 

31 March 2019

31 March 2018

Movement

Profit before tax for the period

 

 €124.0m

€107.1m

+15.8%

EPRA earnings1

 

 €27.5m

€19.4m

+41.6%

IFRS EPS

 

17.8c

15.5c

+14.8%

Diluted IFRS EPS

 

17.6c

15.4c

+14.3%

EPRA EPS 1

 

4.0c

2.8c

+40.4%

Proposed final DPS1

 

2.0c

1.9c

 +5.3%

FY19 DPS1

 

3.5c

3.0c

 +16.7%

1 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 key drivers of EPRA NAV per share, which increased by 14.2 cent from 31 March 2018, were:

·      13.6 cent per share from the revaluation of the property portfolio, including 6.8 cent per share in relation to development properties

·      4.0 cent per share from EPRA earnings in the period

·      0.4 cent per share from profits on the sale of two investment properties

·      Payment of the FY18 final dividend and FY19 interim dividend, which reduced NAV by 3.4 cent per share and other items, which reduced it by a further 0.4 cent


EPRA earnings were €27.5m, up 41.6% compared to the same period in the prior year. The uplift was principally due to increased rental income as a result of new lettings at our developments made in the prior financial year. Administrative expenses (excluding IMA performance-related payments) were €13.9m (March 2018: €13.5m) and included four months of cost from the Group's new remuneration scheme which commenced on 27 November 2018. IMA performance-related payments were €5.4m (Mar 2018: €6.6m) and related primarily to the Group's outperformance of the MSCI Ireland Index in the period to November 2018.

Profit before tax was €124.0m, an increase of 15.8% over the prior year, mainly due to higher revaluation gains in the financial period compared to the same period last year. For reference, the 12 months ended 31 March 2018 saw significant yield compression in the office sector but was also impacted by an increase in stamp duty on Irish commercial property transactions: the impact was to reduce the Group's revaluation gains by an estimated €53.7m.

Funding position

Group leverage target: our through-cycle leverage target remains 20-30%

In December 2018 we refinanced the Group's sole debt facility, a €400m secured revolving credit facility ("RCF") maturing in November 2020, with a margin of 2.05% over EURIBOR, with the following unsecured debt:

Instrument

Quantum

Maturity date

Interest cost

Security

Revolving credit facility (five year)

€320m

December 2023

2.0% over EURIBOR

Unsecured

Private placement notes (seven year)

€37.5m

January 2026

2.36% coupon (fixed)

Unsecured

Private placement notes (ten year)

€37.5m

January 2029

2.69% coupon (fixed)

Unsecured

Total

€395m

N/a

N/a

N/a

 

The refinancing extended the weighted average maturity of the Group's debt from 1.9 years to 5.7 years as at December 2018 (March 2019: 5.4 years, March 2018: 2.7 years) and moved the Group away from being wholly reliant on bank facilities for its debt funding. The move to an unsecured structure also ensures the Group has access to the widest range of possible funding options in future. Due to a reduction in the undrawn commitment fees payable on the new RCF, overall interest costs under the new funding arrangements remain broadly unchanged. The banks participating in the new RCF are Bank of Ireland, Wells Fargo, Barclays Bank Ireland and Allied Irish Banks. The private placement notes were placed with a single institutional investor and drawn in January 2019.

As at 31 March 2019, net debt was €217.1m (March 2018: €202.7m), equating to a loan to value ratio ("LTV") of 15.6% (March 2018: 15.5%). The key line items impacting net debt in the year were total capital expenditure of €47.2m and acquisition expenditure of €40.0m which were largely offset by the receipt of €65.0m from the sale of New Century House. The disposal proceeds from the sale of 77SJRQ of €35.3m were not received until May 2019 and are being returned to shareholders, a process which has commenced with the €25m share buyback programme launched in April 2019.

Cash and undrawn facilities as at 31 March 2019 totalled €178m or €143m net of committed capital expenditure (March 2018: €197m and €120m, respectively). Assuming full investment of the available facilities in property and taking into account the €25m share buyback, the LTV, based on property values at 31 March 2019, would be c. 25%.

Interest rate hedging           

Group hedging policy: to ensure the majority of the interest rate risk on its drawn debt balances is fixed or hedged 

As at 31 March 2019 the Group had €75m of fixed coupon private placement notes and the interest rate risk on the RCF drawings of €159.4m was protected by €225m of hedging instruments comprising:

Instrument

Notional

Strike rate

Exercise date

Effective date

Termination date

Cap

€100m

1%

N/a

November 2017

November 2019

Swaption

€100m

1%

November 2019

November 2019

November 2021

Cap

€125m

0.75%

N/a

February 2019

December 2021

Swaption

€125m

0.75%

December 2021

December 2021

December 2023

 

While the Group is "over-hedged" on its interest rate exposure at present, this causes no additional financial risk to the Group and is expected to cease by November 2019 when caps and swaptions over €100m of notional debt are due to expire. The reason for the over-hedging is that when seeking to put in place additional hedging for the period from November 2019 to the expiry of the new RCF in December 2023, it was found to be no more expensive to start the hedging from February 2019 than from November 2019.

Dividend

Group dividend policy: to distribute 85-90% of recurring rental profits via dividends each financial year, with the interim dividend in a financial year usually representing 30-50% of the total ordinary dividends paid in respect of the prior financial year

The Board has proposed a final dividend of 2.0 cent per share (2018: 1.9 cent), taking the total dividend for the financial year to 3.5 cent per share, an uplift of 16.7% on prior year (2018: 3.0 cent). This represents 89% of the EPRA earnings per share for the financial year, in line with our policy and reduced compared to the last financial year when dividends amounted to 108% of EPRA earnings per share on account of the greater than expected performance fees.

Subject to approval at the Group's AGM on 31 July 2019, the final dividend will be paid on 2 August 2019 to shareholders on the register at 5 July 2019. All of the dividend will be a Property Income Distribution ("PID") in respect of the Group's property rental business as defined under the Irish REIT legislation.

Hibernia's Dividend Reinvestment Plan ("DRiP") is available to shareholders and allows them to instruct Link, the Company's registrar, to reinvest the dividends paid by Hibernia into 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.

Capital management

On 1 April 2019 we announced the sale of 77SJRQ and our intention to return the net proceeds of €35m to shareholders, starting with an on-market share buyback programme of up to €25m which commenced on 2 April. The purpose of the buyback is to maintain our progress towards the lower end of the Group's stated 20-30% leverage target. The buyback is expected to be accretive to EPRA NAV per share. At close of business on 21 May 2019 3.8m shares had been repurchased and cancelled for aggregate consideration of €5.3m.

To enhance our flexibility for future capital management we intend to propose a capital reorganisation resolution at the AGM on 31 July 2019. This will seek permission to convert a substantial part of our share premium account, which had a balance of €624.5m at 31 March 2019, into distributable reserves in a process which will also require High Court approval. Subject to receiving the necessary approvals the capital reorganisation is likely to complete in late 2019.

Expiry of Investment Management Agreement

The Investment Management Agreement ("IMA") entered between Hibernia and WK Nowlan REIT Management Ltd (its former Investment Manager) prior to Hibernia's IPO expired on 26 November 2018. As part of the arrangements for the internalisation of the Investment Manager in 2015 (the "Internalisation") it was agreed that any payments due under the IMA each financial year would be paid, mainly in shares, in lieu of a separate incentive scheme until the expiry of the IMA.

The final performance fee for the period 1 April 2018 to 26 November 2018 was €5.4m (15% of this is being used to fund the Group's Performance Related Remuneration Scheme for staff) and the final base fee top-up was €1.5m. The amounts due to the Vendors will be paid in new shares once the FY19 audit is completed using a share price of 135.1 cent (the average closing share price for the 20 trading days up to and including 26 November 2018) and will be subject to the same lock-up provisions as all other shares they have received.

From 27 November 2018 the Company's new Remuneration Policy, which was approved by shareholders at the Company's AGM in July 2018, took effect.

 

 

Selected portfolio information

1.    Summary EPRA measures

EPRA performance measure

Unit

Financial year ended

31 March 2019

Financial year ended

31 March 2018

EPRA earnings

€'000

27,472

19,403

EPRA EPS

cent

 4.0

 2.8

Diluted EPRA EPS

cent

 3.9

 2.8

Adjusted EPRA EPS

cent

4.8

4.1

EPRA cost ratio - including direct vacancy costs

%

39.3%

47.8%

EPRA cost ratio - excluding direct vacancy costs

%

38.3%

45.6%

EPRA performance measure

Unit

 As at 31 March 2019

 As at 31 March 2018

EPRA net initial yield ("NIY")

%

3.6%

3.8%

EPRA "topped-up" NIY

%

4.1%

4.3%

EPRA net asset value ("EPRA NAV")

€'000

1,219,374

1,112,075

EPRA NAV per share

cent

173.3

159.1

EPRA triple net assets ("EPRA NNNAV")

€'000

1,218,539

1,111,730

EPRA NNNAV per share

cent

173.2

159.1

Like-for-like rental growth

%

7.6%

7.6%

EPRA vacancy rate

%

10.7%

2.0%

 

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

 

Top 10 tenants

€ 'm

%

Sector

 

1

 HubSpot Ireland Limited

10.5

20.9%

      TMT

 

2

 The Commissioners of Public Works

6.0

11.9%

Government

 

3

 Twitter International Company

5.1

10.1%

TMT

4

 Autodesk Ireland Operations

2.8

5.6%

TMT

5

 Informatica Ireland EMEA

2.1

4.2%

TMT

6

 Electricity Supply Board

1.9

3.7%

Government

 

7

 Travelport Digital Limited

1.8

3.6%

TMT

8

 BNY Mellon

1.6

3.2%

Banking and capital markets

 

9

 ComReg

1.6

3.2%

Government

10

 Core Media

1.4

2.8%

      TMT

 

 

Top 10 total

34.9

69.2

 

 

 

Rest of portfolio

15.5

30.8

 

 

 

Total contracted "in-place" office rent

50.4

100.0

 

 

 

3.    In-place office contracted rent by tenant business sector

Sector

€ 'm

%

Technology, media & telecoms

27.7

55.0

Government

10.3

20.4

Banking & capital markets

4.3

8.4

Professional services

4.5

8.9

Serviced offices

0.5

1.0

Insurance & reinsurance

2.0

3.9

Other

1.2

2.4

Total

50.4

100.0

 

4.    In-place office contracted rent and WAULT progression

 

March 2017

Movement
to March 2018

March 2018

Movement
to March 2019

March 2019

All office contracted rent1,3

€42.1m

+18%

€49.6m

+2%

€50.4m

In-place office contracted rent1,3

€38.0m

+31%

€49.6m

+2%

€50.4m

In-place office WAULT2

6.7yrs

+9%

7.3yrs

+3%

7.5yrs

In-place office vacancy3

3%

-

3%

+9pp

12%

1.        Excl. arrangement with Iconic Offices at Block 1 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.)

Principle risks and uncertainties

A description of the Group's principal risks and uncertainties and the steps which the Group has taken to manage them is set out below.  These represent the Board's view of the principal risks at this point in time and there may be other matters that are not currently known to the Board or that are currently considered of low likelihood which could emerge and give rise to material consequences. The mitigation measures that are maintained in relation to these risks are designed to provide a reasonable and not an absolute level of protection against the impact of the events in question.

Exposure

Change since
last year

Impact

Probability

Key controls
and mitigants

Comments

Residual
risk impact

 

Market risk: Weakening economy

A drop in economic activity leading to declining property values and/or rental income

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

Unchanged

Increasing

Active monitoring of economic lead indicators and market developments

Regular financial forecasting, stress testing and scenario planning

Risk appetite limits are in place for key operating indicators

Policy is to use modest leverage levels throughout the property cycle

Underlying economic activity in Ireland is expected to continue to grow at a good rate in the coming years. Core domestic demand growth was 4.5% in 2018 and is expected to be 4.5% in 2019 and 3.9% in 2020 (source: Goodbody). Brexit aside, international economic sentiment is weakening and risks related to international trade and taxation changes persist. These conditions may have an important bearing on the future performance of the Irish economy.

The Group continues to increase WAULTs through lease renewals and letting of new space completed, the WAULT now standing at 7.5 years for the whole office portfolio, up from 7.3 years at 31 March 2018, helping to reduce vacancy risks in a market downturn. Vacancy rates in Dublin remain low (5.4% at 31 March 2019) and take-up remains strong.

Medium

 

Market risk: Under-performance of Dublin property market

Our portfolio is solely focused on the Dublin market

Unchanged

Unchanged

Strategy and asset allocation are regularly reviewed in light of economic and market trends

Risk appetites are set and monitored for concentration levels

Key risk indicators are reported to the Board on a quarterly basis

Dublin office take-up set a new record in 2018 (for a second year running) with 3.9m sq. ft. let and 2019 has started strongly. Investment demand for office and residential assets remains strong with record investment volumes in 2018.

Medium

 

Market risk: Adverse Brexit outcome

Ireland is particularly exposed to the impact of Brexit due to its extensive trade with the UK

An orderly Brexit is likely to be beneficial to certain elements of the Irish economy, including the Dublin property industry, even if others may suffer

In a disorderly Brexit scenario, the negative economic impact is likely to outweigh positives, at least in the near term

 

Unchanged

Unchanged

Low leverage position and financing in place for medium-long term

High quality tenant base

Seeking to lease vacant space and extend WAULTs

The outcome of Brexit remains uncertain though it is reassuring that the British Parliament appears strongly opposed to a "no-deal" Brexit. The Group's key strategic priority continues to be to grow our income and WAULTs through letting our developments, concluding rent reviews and reducing vacancy in the portfolio: these actions will also help protect the Group in the event of an adverse Brexit outcome.

Medium

 

Investment risk: Mistimed investment or sale through incorrect reading of property cycle

Lower returns and/or losses

Missed investment opportunities

Unchanged

Increasing

Experienced investment team in place

Close monitoring of market and economic lead indicators

Rigorous assessment of all acquisition and disposal opportunities and of projected portfolio returns

Board and Investment Committee overview

The Group's portfolio was valued at €1.4 billion at 31 March 2019 and comprised 32 properties. The Group has been a net seller of assets since 31 March 2018, disposing of two properties for €100m and recycling €40m into the acquisition of additional properties and land.

The Chief Investment Officer, Richard Ball, resigned and left the Group on 31 March 2019 to pursue another opportunity. Edwina Governey, previously Senior Investment Manager and an experienced member of the team, has been appointed as interim Chief Investment Officer.

Medium

 

Investment risk: Inappropriate concentration on single assets, locations, tenants or tenant sectors

Excessive exposure leading to poor performance and/or reduced liquidity

Unchanged

Increasing

Risk exposure targets and limits are set and monitored for risk concentration levels

Periodic assessment of covenant strength of tenants

Regular review of portfolio mix and asset allocation and tenant exposure

Board and Investment Committee overview

All the Group's investments are within Dublin and the majority are in the office sector. The Group has assembled a balanced portfolio comprising 32 properties. As at 31 March 2019 the largest single asset represented 11% of the portfolio by value (11% as at March 2018). The in-place office portfolio's top 10 tenants account for 69% of the contracted rent roll as at March 2019 (61% as at March 2018). The Technology, Media and Communications sector ("TMT") accounts for 48% of Group contracted rent and reflects Ireland's success in attracting TMT companies.

Following the letting of 1SJRQ, HubSpot has become Hibernia's largest tenant contributing 18% of Group contracted rent.

Medium

 

Development risk: Poor or mistimed execution of development projects

Poor returns and/or losses

Development projects not managed properly leading to delays and cost overruns

Failure to achieve expected rental levels

Unchanged

Decreasing

Experienced development team

Close monitoring of market and economic lead indicators together with the supply pipeline

Rigorous monitoring of development expenditure against approved budgets

Board and Development Committee overview

As at 31 March 2019 the Group had one committed scheme, totalling 50k sq. ft. of offices, which is scheduled for completion in the first half of 2020 (calendar year).

Two schemes, comprising 172k sq. ft. of Grade A office space successfully completed in February and March 2019, both on budget. More than 65% of this space is let following the HubSpot lease in 1SJRQ and discussions continue regarding the remaining vacant space.

Medium

 

Development risk: Contractor or sub-contractor default

Poor returns and/or losses

Significant delays in completing development projects

 

Unchanged

Decreasing

Due diligence is completed on contractors

Use of reputable and larger contractors

Use of expert advisers to assist in management of contractors and sub-contractors

Close oversight by development team and project managers

The Group has an experienced development team, overseen by the Development Committee. It also uses expert advisers to help assess and manage contractors. The Group seeks to use contractors with proven track records which also helps to mitigate construction risks, including the risk of failing to comply with applicable building regulations.

Medium

 

Development risk: Adverse outcome regarding re-zoning at Newlands (Gateway)

Poor returns and/or losses

Delays

Increasing

Increasing

Experienced development team

Use of expert advisers

Board and Development Committee overview

The majority of the Group's 148 acres of land is zoned for agricultural use under the current local authority development plan which applies until 2022. There is also a small element of industrial land. The Group is working to get the land re-zoned to enable mixed-use development but there is no certainty that this will happen or over the timing of this occurring.  At present the land represents less than 4% of Hibernia's portfolio value so any negative impact is likely to be relatively modest.

Low

 

Asset management risk: Poor asset management

Income not maximised through poor management

Failure to proactively maintain assets leading to increased costs

Loss of tenants due to lack of satisfaction with space and service

Increasing

Unchanged

All building and asset management for multi-let office portfolio is done in-house

Annual survey of tenants to assess satisfaction / areas for improvement

Analysis of covenant strength of prospective and existing tenants

Creation of Head of Occupier Services role to deliver an innovative tenant focused strategy

Focus on improving sustainability credentials

All building and asset management of the office portfolio is carried out by Group staff. This ensures best service for tenants and best management for the Group. As well as daily interactions with tenants by the Group's building managers, the Group carries out an annual tenant survey to assess satisfaction and areas for improvement.

All prospective tenants are analysed by the finance team for covenant strength before leases are agreed. The covenant strength of the Group's key existing tenants is also assessed periodically. As outlined further below and elsewhere, the Group is also highly focused on sustainability.

Low

 

Asset management risk: Failure to react to evolving tenant needs

Space fails to attract new tenants

Assets become less attractive to investors

Reduction in income and capital returns generated

 

Unchanged

Unchanged

Creation of Head of Occupier Services role to deliver an innovative tenant focused strategy and assess changing trends

Regular, proactive maintenance and upgrading of older stock

Creation of clusters of offices to provide better communal areas, services and events for tenants and their staff

Introduction of added value; e.g. wellness programmes, ancillary and shared services

Annual tenant satisfaction surveys and one-on-one meetings with tenants to identify priorities

Focus on improving sustainability credentials

The Group instigates regular assessments of its buildings and upgrades as appropriate. Standard lease terms have been revised in line with tenant and investor interest in sustainability. Shared gym, meeting rooms and other services have been introduced where "clusters" of buildings facilitate this, leading to smaller tenants benefiting from high specification space for meetings and provision of other services for staff.

Compliance with sustainability and environmental standards has been an increasing focus for the Group and its tenants. Sustainability targets include resource management and delivery of new, high quality buildings. The Group reports on EPRA sBPR standards annually and completed its first GRESB assessment during 2018 which includes benchmarking energy, waste and water usages for its buildings, on a private basis. It has identified areas to improve performance in future. Its 2019 GRESB results will be available for all GRESB subscribers to see once published.

Low

 

Finance risk: Lack of available funds for investment

Failure to meet target returns due to funding limitations

Decreasing

Decreasing

Active monitoring and assessment of current and future financial and cash-flow requirements and availability of funding

Quarterly budget and scenario analyses

Assessments of portfolio performance and whether any assets should be sold

Board and Finance & IR Committee oversight

At 31 March 2019 the Group had cash and undrawn facilities totalling €178m, or €143m net of committed capital expenditure (31 March 2018: €197m or €120m). The refinancing of the Group's debt was completed in December 2018 resulting in the extension of weighted average maturity to 5.7 years from 1.9 years (5.4 years at 31 March 2019) and a move to a fully unsecured debt structure, maximising future funding options.

During the financial year the Group has been a net seller, generating net proceeds of €100m of which it has reinvested €85m in acquisitions and developments and committed to return €35m to shareholders.

Low

 

Finance risk: Inappropriate capital structure for market conditions

Excessive gearing resulting in higher funding costs and risk of covenant breaches

Insufficient gearing leading to limited investment returns

 

Unchanged

Unchanged

Policy of maintaining modest leverage throughout the cycle: target loan to value ratio of 20-30% and majority of interest rate exposure fixed or hedged

Active monitoring and assessment of current and future covenant compliance

Quarterly budget and scenario analyses performed

Assessments of portfolio performance and whether any assets should be sold

Board and Finance & IR Committee oversight: all new loan facilities must be approved by the Board.

At 31 March 2019 the Group had a LTV ratio of 15.6% (31 March 2018: 15.5%), with committed capital expenditure in the next 18 months expected to increase the LTV ratio to c. 18%. No covenant breaches occurred in the period. As a result of the refinancing of the Group's facilities, the weighted average maturity of the Group's debt increased from 2.7 years at 31 March 2018 to 5.4 years at 31 March 2019. Further details on this refinancing can be found in note 26 of the financial statements.

Given the net sales proceeds of €60m generated in the year, the Group has committed to return €35m to shareholders to maintain its progress towards the lower end of its leverage target.

Low

 

People risk: Loss or shortage of staff to execute our business plan or failure to motivate staff

Failure to achieve strategic goals

Replacement of departing staff in a competitive labour market may be challenging and/or costly

 

Unchanged

Unchanged

Employee remuneration is strongly linked to Group and individual performance and annual staff appraisal system and variable pay includes deferred element

Periodic assessment of remuneration packages for all staff to ensure in line with market

Positive team spirit is fostered through social and training events.

Personal development and training requirements are reviewed annually

 

Staff turnover remains low, at only 6% in the 2019 financial year.

A new Remuneration Policy was approved by shareholders at the AGM in July 2018 which replaces the existing arrangements which expired on 26 November 2018, as part of this a remuneration assessment was completed for all staff.

The Group has an annual appraisal system for staff, with interim reviews every six months. As well as reviewing performance this system also sets targets for personal development. The Group also hosts regular training sessions at lunchtime to improve staff knowledge in all areas of the business and the industry.

Low

 

Regulatory, tax and political risk: Increased cost of compliance and/or risk of non-compliance with regulatory obligations including laws, planning, environmental, health and safety, tax and other legislation

Cost of compliance impacts profits

Failure to comply may be costly and negatively affect reputation

 

Unchanged

Increasing

The Group spends substantial time, and retains external experts as necessary, to ensure compliance with current and possible future regulatory requirements

Frequent meetings take place with the Group's retained tax advisers

The Sustainability Committee monitors compliance with ESG standards

The Health and Safety Committee addresses regulation including building fire regulation compliance and construction sites

A consultant review of health and safety requirements was completed during the financial year. To promote ESG compliance, the Group participates in GRESB which assesses and benchmarks the ESG performance of real estate companies and provides standardised and validated data to investors. In this way the Group can measure its performance versus its peers. The implementation of GDPR was completed in this period. The Group is working towards achieving additional certification to ISO 45001 and ISO 14001 which will provide a framework to manage and improve sustainability performance and results.

Low

 

Regulatory, tax and political risk: Change in the political landscape in Ireland may result in new laws or regulations which may have an adverse impact on the Group

Changes in laws and/or regulations (including tax laws) may reduce returns

Unchanged

Increasing

The Group monitors news-flow and uses expert advisers to keep abreast of any proposed legislation

There is a shortage of housing, particularly in Dublin, and this could, for example, lead to further Government intervention through new laws and/or regulations.

Medium

 

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

Significant disruption and damage to the Group's portfolio and/or operations.

Unchanged

Unchanged

Business continuity and crisis management plans are reviewed at least annually

Insurance policies include cover for catastrophic events

Security measures and emergency plans are in place for all our buildings

Business continuity plans are reviewed periodically and at a minimum on an annual basis. Other business interruption risks remain stable.

Low

 

Business risk: Cyber-attack/threat

Significant damage to the Group's business

Reputational damage

Unchanged

Unchanged

External consultants complete regular testing of IT security and systems

Regular back-up schedules are in place for all Group information and data

Staff IT information security and cyber security training plan is in place

Cyber security continues to be a focus as the incidence and sophistication of cyber security attacks increases. The Group has continued to improve its IT security measures during the financial year 2019 by reviewing controls and working closely with our IT consultants.

 

Medium

 

Business risk: Reputational damage

Damage or losses due to fraud or error

Inability to attract and retain staff and thus higher costs

Regulatory sanctions in the event of a non-compliance issue

 

Unchanged

Unchanged

Effective internal controls and fraud prevention measures in place

Board scrutiny of compliance and related matters

Audit Committee's active role in the oversight of all risk within the Group

Internal audit monitors and provides assurance around internal processes and controls

The Group adheres to the highest standards of corporate governance. An internal audit function was added in 2018 and the first two internal audits have since been completed. The Group uses PwC to provide internal audit services.

Building management has been brought in-house so the Group can manage its multi-let properties to its own rigorous standards and is not dependent on third parties for this. With an increasing focus on sustainability by investors and tenants alike, the Group has committed to industry standard benchmarking with its membership of GRESB.

Low

 

 

 

 

Consolidated income statement

For the financial year ended 31 March 2019

 

 

Financial year ended

31 March 2019

€'000

Financial year ended

31 March 2018

€'000

 

Notes

Revenue

5

 61,387

 54,094

Rental income

 5

 56,027

 49,075

Property operating expenses

5  

(2,718)

(3,352)

Net rental and related income

5

 53,309

 45,723

Gains and losses on investment property

7

 98,105

 87,802

Other gains and (losses)

8

 140

(41)

 

 151,554

 133,484

Operating expenses

 

 

 

Administration expenses

9

(13,890)

(13,517)

IMA performance-related payments

11

(5,401)

(6,599)

Total operating expenses

(19,291)

(20,116)

Operating profit

 

 132,263

 113,368

Finance income

 

 5

7

Finance expense

 

(8,226)

(6,243)

Finance expense-net

12 

(8,221)

(6,236)

Profit before income tax

 124,042

 107,132

Income tax expense

13

(583)

(31)

Profit for the financial year

 123,459

 107,101

 

 

 

 

EPRA earnings for the financial year

15

27,472

 19,403

Earnings per share

 

 

 

Basic earnings per share (cent)

15

 17.8

 15.5

Diluted earnings per share (cent)

15

 17.6

 15.4

EPRA earnings per share (cent)

15

 4.0

 2.8

Diluted EPRA earnings per share (cent)

15

 3.9

 2.8

 

The notes on pages 31 to 73 form an integral part of these consolidated financial statements.

 

Consolidated statement of comprehensive income

For the financial year ended 31 March 2019

 

 

Financial year ended
31 March 2019

 

Financial year ended
31 March 2018

Notes

€'000

 

€'000

Profit for the financial year

 

 123,459

 

 107,101

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

24.a

 723

 

657

Items that may be reclassified subsequently to profit or loss:

 

 

Net fair value gain/(loss) on hedging instruments entered into for cash flow hedges

24.b

 41

 

(112)

Total other comprehensive income

 

 764

 

545

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

 

124,223

 

107,646

           

 

 

 

The notes on pages 31 to 73 form an integral part of these consolidated financial statements.

 

 

 

Consolidated statement of financial position

As at 31 March 2019

 

Notes

31 March 2019

€'000

31 March 2018

€'000

Assets

 

 

 

Non-current assets

 

 

 

Investment property

17

 1,395,418

 1,308,717

Property, plant and equipment

18

 5,902

 5,411

Other financial assets

21

 194

240

Trade and other receivables

 22

 7,928

 7,787

Total non-current assets

 1,409,442

 1,322,155

Current assets

 

 

 

Trade and other receivables

22

 40,164

 7,239

Cash and cash equivalents

20

 22,372

 22,521

 

 

 62,536

 29,760

Non-current assets classified as held for sale

19

 534

534

Total current assets

 

 63,070

 30,294

Total assets

 

 1,472,512

 1,352,449

Equity and liabilities

 

 

 

Capital and reserves

 

 

 

Issued capital and share premium

23

 694,242

 686,696

Other reserves

24

 9,157

 9,620

Retained earnings

25

 515,140

 415,414

Total equity

 

 1,218,539

 1,111,730

Non-current liabilities

 

 

 

Financial liabilities

26.a

 231,048

 218,409

Deferred tax liabilities

27

 547

 -

Total non-current liabilities

 231,595

 218,409

Current liabilities

 

 

 

Financial liabilities

26.a

 507

809

Trade and other payables

28

 19,863

 19,756

Contract liabilities

 29

 2,008

 1,745

Total current liabilities

22,378

 22,310

Total equity and liabilities

1,472,512

 1,352,449

IFRS NAV per share (cent)

16

 174.7

 160.6

Diluted IFRS NAV per share (cent)

16

 173.2

 159.1

EPRA NAV per share (cent)

16

 173.3

 159.1

 

The notes on pages 31 to 73 form an integral part of these consolidated financial statements.

 

 

Consolidated statement of changes in equity

For the financial year ended 31 March 2019

 

 

Financial year ended 31 March 2019

 

 

Notes

Share Capital

€'000

Share Premium

€'000

Retained earnings

€'000

Other reserves

€'000

Total

€'000

 

Balance at start of financial year

 

 69,235

 

 617,461

 

 415,414

 9,620

 

 1,111,730

Total comprehensive income for the financial year

 

 

 

 

 

 

 

 

 

Profit for the financial year

 

 -

 

 -

 

 123,459

  -

 

 123,459

Total other comprehensive income

 

 -

 

 -

 

 764

 

 764

 

 

 69,235

 

 617,461

 

 538,873

 10,384

 

 1,235,953

Transactions with owners of the Company, recognised directly in equity

 

  

 

  

 

  

 

 

 

Dividends paid

25

-

 

  -  

 

(23,719)

-  

 

(23,719)

Issue of ordinary shares in settlement of share-based payments

23

 524

 

 7,022

 

-

(7,546)

 

-  

Share issue costs

 

  -  

 

-

 

(14)

  -

 

(14)

Share-based payments expense/cash settlement

11

-

 

-

 

 - -  

 6,319

 

 6,319

Balance at end of financial year

 

 69,759

 

 624,483

 

 515,140

 9,157

 

 1,218,539

                                   

 

 

 

Financial year ended 31 March 2018

 

Notes

Share Capital

€'000

Share Premium

€'000

Retained earnings

€'000

Other reserves

€'000

Total

€'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 paid

25

-

-

(17,656)

-

(17,656)

Issue of ordinary shares in settlement of share-based payments

23

690

7,896

-

(8,586)

 -

Share issue costs

 

 -

 -

(14)

 -

(14)

Share-based payments expense/cash settlement

11

 -

-

 -

7,902

7,902

Balance at end of financial year

 

69,235

617,461

415,414

9,620

1,111,730

 

The notes on pages 31 to 73 form an integral part of these consolidated financial statements.

 

 

 

Consolidated statement of cash flows

For the financial year ended 31 March 2019

 

 

Notes

Financial year ended

 31 March 2019

€'000

 

Financial year ended

 31 March 2018

€'000

 

Cash flows from operating activities

 

 

 

Profit for the financial year

 

 123,459

 

 107,101

Adjustments from:

 

 

 

 

Gain on sales of investment property

7

(2,578)

 

(6,425)

Other gains and losses

 

(140)

 

 41

Cash-settled share-based payments

11.b

(339)

 

 -

Finance expense

 

 8,221

 

 6,236

Non-cash movements

30.a

(85,359)

 

(68,746)

Operating cash flow before movements in working capital

 43,264

 

38,207

(Increase) in trade and other receivables

(961)

 

(962)

(Decrease)/increase in trade and other payables

(447)

 

945

Increase in contract liabilities

 263

 

 884

Net cash flow from operating activities

 42,119

 

 39,074

Cash flows from investing activities

 

 

 

Cash expended on investment property

30.b

(86,847)

 

(93,787)

Cash received from sales of investment property

30.c

64,016

 

 35,815

Purchase of fixed assets

18

(52)

 

(238)

Cash received from loans repaid

 

 170

 

 -

Income on other assets

 

 122

 

(41)

Finance income

 

 5

 

 7

Finance expense

 

(9,546)

 

(5,378)

Net cash flow absorbed by investing activities

(32,132)

 

(63,622)

Cash flow from financing activities

 

 

 

Dividends paid

25

(23,719)

 

(17,656)

Borrowings drawn

26.a

 340,412

 

 86,454

Borrowings repaid

26.a

(326,372)

 

(39,674)

Derivatives premium paid

 

(443)

 

(189)

Share issue costs

 

(14)

 

(14)

Net cash outflow from financing activities

(10,136)

 

 28,921

Net (decrease)/increase in cash and cash equivalents

(149)

 

 4,373

Cash and cash equivalents start of financial period

 22,521

 

 18,148

(Decrease)/increase in cash and cash equivalents

(149)

 

 4,373

Net cash and cash equivalents at end of financial period

 22,372

 

 22,521

 

The notes on pages 31 to 73 form an integral part of these consolidated financial statements.

 

 

 

Notes to the consolidated financial statements

Section I - 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 property are described within the relevant note to the consolidated financial statements. This section also includes a summary of the new European Union ("EU") endorsed accounting standards, amendments and interpretations that have not yet been adopted and their expected impact on the reported results of the Group.

The Group has applied IFRS 9 and IFRS 15 for the first time in these financial statements (notes 3 and 37). There was no material impact on the financial results or on the financial position as at 1 April 2018 as a result of adopting these standards.

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 2019. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings and financial instruments that are measured at fair value at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

The Group has not early adopted any forthcoming IASB standards (note 3).

b.     Alternative performance measures

The Group uses alternative performance measures to present certain aspects of its performance. These are explained and, where appropriate, reconciled to equivalent IFRS measures in the Supplementary Information section at the back of this report. The main alternative performance measures used are those issued by the European Public Real Estate Association ("EPRA") which is the representative body of the listed European real estate industry. EPRA issues guidelines and benchmarks for reporting both financial and sustainability measures. These are important in allowing investors to compare and measure the performance of real estate companies across Europe on a consistent basis. EPRA earnings and EPRS NAV are presented within the consolidated financial statements and fully reconciled to IFRS as these two measures are among the key performance indicators for the Group's business.

c.     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.

d.     Basis of consolidation

The consolidated financial statements incorporate the consolidated financial statements of the Company and entities controlled by the Company (its subsidiaries). The accounting policies of all consolidated entities are consistent with the Group's accounting policies. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

e.     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 2019 of €22m (March 2018: €23m), is generating positive operating cash flows and, as discussed in note 26, has in place debt facilities with average maturity of 5.4 years and an undrawn balance of €160.6m at 31 March 2019 (March 2018: €179m). 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.

f.      Significant judgements

The preparation of the consolidated 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 consolidated 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 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 property

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

·      Harcourt Square, which is valued on a residual basis as this reflects its highest and best use as a development property. The present value of the residual income to December 2022 when the current lease expires is added to the residual value.

·      Gateway industrial site, which is currently rented on short-term leases, and 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.

·      Marine House and Clanwilliam Court Blocks 1, 2 and 5 are valued on an investment basis until the end of the leases (2020 and 2021 respectively) and on a residual basis thereafter, as it is the Directors' intention to undertake a refurbishment/ development of both sites after the leases expire. Planning permission has been granted for Marine House and the Group is currently seeking planning permission for Clanwilliam Court Blocks 1, 2 and 3.

Residential assets: 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, 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 each 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 is 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 significant judgement is required in the interpretation and application of IFRS 2 to these arrangements. The calculation of the absolute element of the performance fee required some judgement around adjustments to EPRA NAV and while not material in nature, due to the related party nature of the IMA performance-related payments, these were reviewed by the Audit Committee.

 

 

g.     Analysis of sources of estimation uncertainty

Valuation of investment property

The Group's investment properties are held at fair value and were valued at 31 March 2019 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 Board conducts a thorough review of the property valuations 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 valuations are 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 investment property is appropriate for inclusion in the consolidated financial statements. The fair value of these properties is based on the valuation provided by C&W.

In accordance with the Group's policy on income recognition from leases, the valuation provided by C&W is adjusted by the fair value of the income accruals ensuing from the recognition of lease incentives and the deferral of lease costs. The total reduction in the external valuer's investment property valuation in respect of these adjustments was €6.7m (March 2018: €6.8m).

There were no other significant judgements or key estimates that might have a material impact on the consolidated financial statements at 31 March 2019.

 

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

Changes in accounting standards

The following Standards and Interpretations are effective for the Group from 1 April 2018 but did not have a material impact on the results or financial position of the Group:

IFRS 2 (amendment) Classification and Measurement of Share-based Payment Transactions changes the classification and measurement of certain cash-based and mixed share-based payments. This applies to minor amounts of equity settled share-based payments which may have a cash element in settling employee tax obligations (note 11).

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Measurement and Recognition and includes revised requirements on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment of financial assets, and new general hedge accounting requirements. It also carries forward the requirements on recognition and derecognition of financial instruments from IAS 39. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of "held-to-maturity", "loans and receivables" and "available for sale". Under IFRS 9, on initial recognition, a financial asset is classified as measured at amortised cost or fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVPL). The classification is dependent on the business model for managing the financial assets and on whether the cash flows represent solely the payment of principal and interest.

The Group has elected to adopt the new general hedge accounting model in IFRS 9. Under IFRS 9, the Group's hedges on interest rates on its debt continue to be recognised as cash flow hedges. Accounting for the cost of hedging, which is not material, has been applied prospectively, without restating comparatives.

The Group has quantified the impact on its consolidated financial statements resulting from the application of IFRS 9. A small amount of the Group's receivables is classified as financial assets, the majority of which are of a very short-term nature, are within agreed terms and have no historic losses. The move from an incurred loss model to an expected loss model has therefore had an immaterial effect on balances. The implementation of IFRS 9 resulted in the reclassification of the Group's loans held (notes 3 and 37) from amortised cost to fair value through profit or loss (FVPL) which has also had an immaterial effect. This loan was realised during the financial year (note 21)

On this basis, the classification and measurement changes do not have a material impact on the Group's consolidated financial statements and IFRS 9 was therefore adopted with no restatement of comparative information and no adjustment to retained earnings on application at 1 April 2018. In line with the transition guidance in IFRS 9, the Group has not restated the 31 March 2018 prior year. Please refer to note 37 for further information on transition.

 

 

IFRS 15 Revenue from Contracts with Customers and the related Clarifications to IFRS 15 Revenue from Contracts with Customers (hereinafter referred to as 'IFRS 15') replace IAS 18 Revenue, IAS 11 Construction Contracts, and several revenue-related interpretations. In preparation for the transition to IFRS 15, the Group reviewed all material contracts to identify contracts with customers that fall within the scope of IFRS 15. The Group has reviewed its policies and disclosures to ensure that users of the accounts can understand the nature, amount, timing and uncertainty of revenue. The adoption of this standard applied to the accounting for service charge income and expense but excluded rent receivable, the Group's main source of income, which is still within the scope of IAS 17 (and from 1 April 2019 IFRS 16). The Group has completed its implementation of this standard with no material impact on the financial statements. 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 that has been used to recognise these elements of revenue and related expenditure under the previous accounting policy.

Implementation of this standard has not resulted in any restatement of comparatives presented nor equity balances carried forward. New policies are disclosed where relevant in the notes to the financial statements and disclosures have been reviewed and amended as appropriate in the relevant notes to these consolidated financial statements. Please refer to note 37  for further information on transition.

IAS 40 (amendment) Investment Property - an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. This has had no impact as no transfers have taken place into or out of investment property since April 2018.

Impacts expected from new or amended standards

The following standards and amendments are not are expected to have a significant impact on reported results or disclosures of the Group and were not effective at the financial year end 31 March 2019 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 16 Leases is applicable for annual reporting periods beginning on or after 1 January 2019.

IFRS 16 will result in almost all leases being recognised on the balance sheet as it removes the distinction between operating and finance leases for lessees. As the Group is mainly a lessor, the introduction of IFRS 16 on 1 April 2019 will have minimal impact on the Group financial statements. As at the reporting date the Group has no operating leases.

IFRS 17 Insurance Contracts requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts. The Group does not currently envisage any impact from the introduction of this standard. IFRS 17 supersedes IFRS 4 Insurance Contracts as of 1 January 2021.

IFRIC 23 Uncertainty over Income Tax Treatments addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It is currently not expected to be applicable to the Group's financial statements. It is applicable to annual reporting periods beginning on or after 1 January 2019.

Amendments to IAS 19 Employee Benefits are effective for annual reporting periods beginning on or after 1 January 2019: this applies to defined benefit pension schemes and will therefore have no impact on the Group's consolidated financial statements.

Amendments to IFRS 3 Business Combinations clarify the definition of a business and have no impact on the Group's consolidated financial statements. They apply to business combinations that take place in annual reporting periods that commence on or after 1 January 2020.

Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarify the definition of "material" and are effective for annual reporting periods that commence on or after 1 January 2020. These amendments are not expected to have a significant impact on the Group.

Annual Improvements to IFRS Standards 2015-2016 Cycle - effective for annual reporting periods beginning on or after 1 January 2019. Makes amendments to the following standards:

IFRS 12 Disclosure of Interests in Other Entities clarifies the scope of the standard by specifying the disclosure requirements in the standard that apply to an entity's interests that are classified as held for sale, as held for distribution or as discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

IAS 28 Long-term Interests in Associates and Joint Ventures clarifies that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition.

These amendments are not expected to have a significant impact on the Group.

 

 

Section II - Performance

This section includes notes relating to the performance of the Group for the year, including segmental reporting, earnings per share and net asset value 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 either generating rental income or are available to let. 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 remains in this category.

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"), Total Accounting Return ("TAR"), 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 completed multi-tenanted residential assets.

Industrial/land assets

This segment contains industrial units and agricultural land, which generates some rental income.

Other assets

This segment contains other assets that are 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 property is transferred to income-generating segments. 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), 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 alternative performance measures ("APMs") (detailed in the supplementary section at the back of this report) measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiry 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 2019

 

Office assets

€'000

Office development assets

€'000

Residential assets

€'000

Industrial/land assets

€'000

Other assets

€'000

Central assets and costs

€'000

Group consolidated position

€'000

 

Total revenue

 53,497

-

 6,862

 1,028

 -

 -

 61,387

Rental income

 48,137

 -

 6,862

 1,028

 -

 -

 56,027

Property operating expenses

(1,373)

 -

(1,314)

(31)

 -

 -

(2,718)

Net rental and related income

 46,764

-  

 5,548

 997

 -

 -

 53,309

Gains and (losses) on investment property

 37,837

 48,020

 13,559

(1,311)

 -

 -

 98,105

Other gains and (losses)

 -

 -

 -

 -

 -

 140

 140

Total income

 84,601

 48,020

 19,107

(314)

 -

 140

 151,554

Administration expenses

 -

 -

 -

 -

 -

(13,606)

(13,606)

Depreciation

 -

 -

 -

 -

 -

(284)

(284)

IMA performance-related payments

 -

 -

 -

 -

 -

(5,401)

(5,401)

Total operating expenses

 -

 -

 -

 -

 -

(19,291)

(19,291)

Operating profit/(loss)

 84,601

 48,020

 19,107

(314)

 -

(19,151)

 132,263

Finance income

 -

 -

 -

 -

 -

5

 5

Finance expense

(2,861)

 -

 -

 -

 -

(5,365)

(8,226)

Profit before income tax

 81,740

 48,020

 19,107

(314)

 -

(24,511)

 124,042

Income tax

 -

 -

 -

(547)

 -

(36)

(583)

Profit for the financial year

 81,740

 48,020

 19,107

(861)

 -

(24,547)

 123,459

Total segment assets

 1,224,888

 16,199

 153,606

 53,144

 534

 24,141

 1,472,512

Investment property

 1,173,140

 16,199

 153,079

 53,000

 -

 -

 1,395,418

 

For the financial year ended 31 March 2018

 

Office assets

Office development assets

Residential assets

Industrial/land assets

Other assets

Central assets and costs

Group consolidated position

 

€'000

€'000

€'000

€'000

€'000

€'000

€'000

Revenue

 46,954

 -

 6,475

 665

 -

 -

 54,094

Rental income

 41,935

 -

 6,475

 665

 -

 -

 49,075

Property operating expenses

(2,019)

 -

(1,257)

(16)

(60)

 -

(3,352)

Net rental and related income

 39,916

 -

 5,218

 649

(60)

 -

 45,723

Gains and losses on investment property

 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

Administration expenses

 -

 -

 -

 -

 -

(13,232)

(13,232)

Depreciation

 -

 -

 -

 -

 -

(285)

(285)

IMA performance-related payments

 -

 -

 -

 -

 -

(6,599)

(6,599)

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

 -

 -

 -

 -

 -

 7

7

Finance expense

(2,838)

 -

 -

 -

(103)

(3,302)

(6,243)

Profit before income 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 property

1,017,937

 134,500

 138,480

 17,800

 -

 -

1,308,717

c.       Geographic information

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

d.      Major customers

The Group uses information on its top 10 tenants to monitor its major customers. This is presented below based on contracted rents as at the financial year end. This is concentrated on office tenants as the next major segment, residential, consists mainly of small household tenants and therefore contains no major concentration of credit risk.

The Group's top 10 tenants are as follows, expressed as a percentage of contracted office rent:

As at 31 March 2019

 Tenant ​

Business Sector​

Contracted Rent

(€m)​

 

% ​

 

HubSpot Ireland Limited

TMT​

10.5

 

20.9%​

 

The Commissioners of Public Works ​("OPW")

Government Agency​

 6.0​

 

11.9%​

 

Twitter International Company ​

TMT​

 5.1​

 

10.1%​

 

Autodesk​ Ireland Operations Limited

TMT​

 2.8​

 

5.6%​

 

Informatica Ireland EMEA ​

TMT​

 2.1​

 

4.2%​

 

Electricity Supply Board ​("ESB")

Government Agency​

 1.9​

 

3.7%​

 

Travelport Digital Limited ​

TMT​

 1.8​

 

3.6%

 

BNY Mellon Fund Services​

Banking & Capital Markets​

1.6​

 

3.2%​

 

Commission for Communications Regulation ("ComReg")

Government Agency​

1.6​

 

3.2%​

 

 

 

 

Core Media

TMT

1.4

 

2.8%

Top 10 tenants 

 

34.8

 

69.2%

 

Remaining tenants ​

 ​

15.6

 

30.8%​

 

Whole office portfolio

 

50.4

 

100.0%

 

As at 31 March 2018

 Tenant ​

Business Sector​

Contracted Rent

(€m)​

 

% ​

 

The Commissioners of Public Works ​("OPW")

Government Agency​

6.0​

 

12.1%​

 

Twitter International Company

TMT​

 5.1​

 

10.2%​

 

HubSpot Ireland Limited ​

TMT​

 3.8​

 

7.6%​

 

Bank of Ireland ​

Banking and Capital Markets

 2.9​

 

5.7%​

 

Autodesk​ Ireland Operations Limited

TMT​

 2.8​

 

5.7%​

 

Informatica Ireland EMEA ​

TMT​

 2.1​

 

4.3%​

 

Depfa Bank plc ​

Banking and Capital Markets

 2.0​

 

4.1%

 

Electricity Supply Board ​("ESB")

Government Agency

1.9

 

3.8%​

 

Travelport Digital Limited

TMT​

1.8​

 

3.7%​

 

 

 

IWG

Co-working

 1.8​

 

3.6%​

 

Top 10 tenants 

 

30.2

 

60.8%

 

Remaining tenants ​

 ​

19.4​

 

39.2%​

 

Whole office portfolio

 

49.6

 

100.0%

 

 

5.       Revenue and net rental and related income

Accounting policy

The Group recognises revenue from the following major sources:

Rental income

Service charge income

Other ad-hoc income such as surrender premia and fees from other activities associated with the Group's property business.

Revenue is measured based on the consideration to which the Group expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.

Rental income

Rental income is the Group's major source of income and arises from properties under operating leases. Rental income, including fixed rental uplifts, 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

The Group manages the majority of its multi-let buildings under service contracts. These contracts operate for a one-year period over which the Group provides communal services such as security, cleaning, waste and other occupation services to the tenants in its buildings. The tenants pay a service charge, based on the area they occupy, which is collected in advance based on budgeted costs. This income stream is recognised as revenue in accordance with the policy described under property-related income and expense  below.

Other income

All other income is recognised in accordance with the following model:

1. Identify the contract with a customer

2. Identify all the individual performance obligations within the contract

3. Determine the transaction price

4. Allocate the price to the performance obligations

5. Recognise revenue as the performance obligations are fulfilled

Property-related income and expenses

Property-related income and expenses comprise service charge income (revenue from contracts with customers) and service charge expenses (costs of goods and services) as well as other property expenses. The Group enters into property management arrangements with tenants as part of its activities. These arrangements constitute a separate performance obligation to the obligations under the rental leases. Buildings with multiple tenants share the costs of common areas and pooled services under these arrangements. The Group manages these costs for tenants and earns a management fee for the provision of shared services on a cost-plus basis. As a landlord, costs of vacant areas are absorbed by the Group and included in other property expenses.

The service charge income stream is accounted for as a single performance obligation which is satisfied over time because the tenant simultaneously receives and consumes the benefits of the Group's activities in providing services under the agreement. Service charge income and expenditure is therefore recognised on an input basis. Tenants reimburse expenses in advance based on budgets with over and under spends reconciled and settled annually. Service charge accounts are maintained for each managed building and the application and management of funds are independently reviewed on the tenants' behalf.

Property operating expenses comprise expenses relating to properties that are not recharged to tenants, i.e. void costs, residential management costs and other related property expenses.

 

Revenue can be analysed as follows:

 

 

 Financial year ended

31 March 2019

€'000

 

 Financial year ended

31 March 2018

€'000

 

 

 

Gross rental income

 

 56,242

 

 46,306

Rental incentives

 

(215)

 

 2,769

Rental income

 

 56,027

 

 49,075

Revenue from contracts with customers1

 

 5,360

 

 5,019

Total

 

 61,387

 

 54,094

1. Revenue from contracts with customers is service charge income

Net rental and related income

 

 

 Financial year ended

31 March 2019

€'000

 

 Financial year ended

31 March 2018

€'000

 

 

 

Total revenue

 

61,387

 

 54,094

Cost of goods and services1

 

 (5,482)

 

 (5,224)

Property expenses

 

 (2,596)

 

(3,147)

Net rental and related income

 

 53,309

 

 45,723

1. Costs of goods and services are service charge expenses

Further information on the sources and characteristics of revenue and rental income is provided in note 6.

 

Included in other property expenses is an amount of €0.5m (March 2018: €1.2m) relating to void costs on office properties, i.e. costs relating to properties which were available to let but were not income-generating during the financial period.

Property operating expenses

 

 

 Financial year ended

31 March 2019

€'000

 

 Financial year ended

31 March 2018

€'000

 

 

 

Service charge income

 

 5,360

 

 5,019

Service charge expense

 

 (5,482)

 

 (5,224)

Property expenses

 

 (2,596)

 

(3,147)

Property operating expenses

 

(2,718 )

 

( 3,352 )

 

 

6.       Disaggregation of revenue and rental income

Disaggregation of revenue and rental income     
The Group's business is the rental of its investment properties, the development of properties for its investment portfolio and the provision of managed multi-let buildings to its tenants. The Group's revenue consists of rental income, service charge income and other ad-hoc receipts from its property business such as surrender premiums. The majority of its contracts are longer-term, with some being 10 years or greater, excluding residential tenancy arrangements which are generally one year in duration. Service charge arrangements are generally provided for under the lease contract but constitute a different performance obligation, the conditions attaching to which are negotiated annually.

Note 4: Operating segments discloses the analysis of revenue and income and expense in line with the Group's business model, i.e. by investment property category. In order to complete the disaggregation of revenue by categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors, analyses of the revenue for the period by duration of lease contracts (to next break date) and by tenant industry sector are provided below. Additional information on portfolio characteristics that impact on income is set out in the business review.

Total revenue by duration of lease contract (based on next break date or expiry)

Service charge income is included within the one-year segment as these arrangements, while provided for under the lease contracts, are negotiated on an annual basis. Other income is once-off in nature and is recognised in the one year or less segment, for example rental income on other assets.

Financial year ended 31 March 2019

 

 

 

 

 

 

Lease contracts:

One year or less

Assets sold

Current leases

Between one and five years

Greater than five years

Total

 

€'000

€'000

€'000

€'000

€'000

Office assets

2,926

 10,360

16,710

23,501

 53,497

Office development assets

 -

-

 -

-

-

Residential assets

 -

6,862

 -

-  

6,862

Industrial/land assets

 -

-

698

330

1,028

 

2,926

17,222

 

 

 

Total segmented revenue

 

 20,148

 17,408

23,831

 61,387

Financial year ended 31 March 2018

 

 

 

 

 

 

Lease contracts:

One year or less

Assets sold

Current leases

Between one and five years

Greater than five years

Total

 

€'000

€'000

€'000

€'000

€'000

Office assets

995

 8,822

15,376

 21,761

 46,954

Office development assets

 -

-

 -

 -

-

Residential assets

 -

6,475

 -

 -

6,475

Industrial/land assets

 -

570

95

 -

665

 

995

15,867

 

 

 

Total segmented revenue

 

16,862

15,471

 21,761

 54,094

 

Rental income by tenant industry sector

 

 

Financial year ended 31 March 2019

Financial year ended 31 March 2018

 

 

€'000

%

 

€'000

%

Technology, media and telecommunications

 

 19,977

35.7%

 

14,557

29.7%

Government agency

 

 10,362

18.5%

 

10,434

21.3%

Banking and capital markets

 

 8,501

15.2%

 

8,285

16.9%

Residential

 

 6,862

12.2%

 

6,441

13.1%

Professional services

 

 5,276

9.4%

 

5,497

11.2%

Co-working

 

 2,230

4.0%

 

690

1.4%

Insurance and reinsurance

 

 1,246

2.2%

 

1,593

3.2%

Logistics

 

 1,028

1.8%

 

665

1.4%

Other

 

 545

1.0%

 

913

1.8%

Rental income

 

56,027

 

 

49,075

 

7.       Gains and losses on investment property

The Group sold New Century House during the period for €65m, net of costs, realising a profit of €2.4m on book value at the sales date. 77 Sir John Rogerson's Quay ("77SJRQ") was contracted to be sold in March 2019 for a €0.2m gain over book value. Sales of three properties in the financial year ended 31 March 2018 realised proceeds of €35.8m and a profit over book value of €6.4m after costs.

 

 

 

 Financial year ended 31 March 2019

€'000

 

 Financial year ended

31 March 2018

€'000

 

Note

 

Revaluation of investment property

17

 95,527

 

 81,377

Gains on sale of investment property

 

 2,578

 

 6,425

Gains and losses on investment property

 98,105

 

 87,802

8.       Other gains and losses

Other gains and losses arise from amounts received or paid in relation to assets other than investment property and realised gains or losses on the resolution of loans measured at fair value. €0.1m of this amount related to a reduction in monies accrued in relation to development bonds. The balance of the amount for the financial year ended 31 March 2019 related to a profit on the realisation of an outstanding loan measured at fair value and small amounts of rental income and costs relating to assets other than investment property. Amounts for the financial year ended 31 March 2018 related to surpluses and deficits on assets other than investment property.

9.       Administration expenses

Accounting policy

Administration expenses are recognised on an accruals basis in the consolidated income statement.

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

 

Note

 Financial year ended

31 March 2019

€'000

 

 Financial year ended

31 March 2018

€'000

 

Non-Executive Directors' fees

 

 447

 

 286

Professional valuer's' fees

 

 394

 

 281

Prepaid remuneration expense

 

 2,679

 

 4,444

Depository fees

 

 299

 

 278

Depreciation

18

 284

 

 285

"Top-up" internalisation expenses

11.b

 1,482

 

 1,743

Staff costs

10

 4,516

 

 3,405

Other administration expenses

 

 3,789

 

 2,795

Administration expenses

 

 13,890

 

 13,517

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 €140k in consulting fees as well as payments in relation to his interest as a Vendor of the Investment Manager during the financial year (note 36.b). Annual Non-Executive Directors' fees increased from €300k to €495k as at 31 March 2019 due to increases effective from 1 April 2018 and the addition of Roisin Brennan.

Prepaid remuneration expense related to the recognition of payments to the Vendors of the Investment Manager that were 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. The clawback arrangements over one-third of these payments were removed on each anniversary of the acquisition date until 26 November 2018. Given the expiry of the arrangements on 26 November 2018, the balance included in trade and other receivables for this at 31 March 2019 was €nil (March 2018: €2.7m) (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.b). There are no further top-up fees due after the expiry of these arrangements on 26 November 2018.

Professional valuer's fees are paid to Cushman & Wakefield ("C&W"), in return for their services in providing independent valuations of the Group's investment properties on an at least twice-yearly basis. The fees are charged on a fixed rate per property valuation. In the financial year ended 31 March 2019 additional valuation work was carried out at 31 December 2018 for the calculation of the final IMA performance-related amounts at 26 November 2018 (note 11) and for the refinancing of the revolving credit facility.

Auditor's remuneration (excluding VAT)

 

Financial year ended

31 March 2019

Financial year ended

31 March 2018

€'000

€'000

Group

 

 

Audit of the Group financial statements

113

107

Other assurance services1

72

44

Tax advisory services

 -

 -

Other non-audit services

 -

 -

Total

185

151

1. Other assurance services include the review of the Interim Report, audit of Group subsidiary financial statements and a review of the final IMA performance calculation in early 2019.

 

10.     Employment

The average monthly number of persons (including Executive Directors) directly employed during the financial year in the Group was 33 (March 2018: 28).

Total employees at financial year end:

Group

 

Financial year ended

31 March 2019

Number

Financial year ended

31 March 2018

Number

At financial year end:

 

 

Building management services

 

 

Head office staff

6

6

On-site staff

5

5

 

11

11

Administration

23

21

Total employees

34

32

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

Group

The staff costs for the above employees were:

 

 

Financial year ended

31 March 2019

 

Financial year ended

31 March 2018

 

 

€'000

 

€'000

Wages and salaries

 

 4,953

 

 4,023

Social insurance costs

 

430

 

 415

Employee share-based payment expense

587

 

 570

Pension costs - defined contribution plan

 

310

 

 235

Total

 

6,280

 

 5,243

Staff costs are allocated to the following expense headings:

 

 

Financial year ended

31 March 2019

 

Financial year ended

31 March 2018

 

 

€'000

 

€'000

Administration expenses

 

4,516

 

 3,405

Net property expenses1

 

954

 

848

IMA performance-related payments

 

810

 

990

Total

 

6,280

 

 5,243

1. Most of the €954k is recovered directly from tenants via the service charge arrangements within Hibernia managed buildings.

 

 

 

 

11.     Share-based payments

Accounting policy

The Group has a number of share-based payment 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.

The equity-settled share-based awards granted under these plans are measured at the fair value of the equity instrument at the date of grant. The cost of the award is charged to the consolidated income statement over the vesting period of the awards based on the probable number of awards that will eventually vest, with a corresponding credit to shareholders' equity.

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. When these shares vest they are assessed for tax purposes at the current market share price and employee taxes are settled through payroll in cash. Employees therefore receive the number of shares net of taxes at vesting date.

Movements in share-based payments during the financial year by share-based payment scheme

Summary of share-based payments financial year ended 31 March 2019

 

Opening balance

Paid

Provided1

Closing balance

 

 

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

a. New remuneration policy - Annual Bonus provided

 -

 -

 -

 -

 23

 17

 23

 17

b. IMA performance-related payments payable to Vendors

 7,332

 5,079

(7,334)

(5,079)

 6,071

 4,495

 6,069

 4,495

b. IMA performance-related payments payable to employees

 1,373

 1,044

(551)

(428)

 386

282

1,208

 898

c. Employee long-term incentive plan - interim arrangements

 78

 60

 -

 -

 178

 129

 256

 189

Balance at period end

 8,783

 6,183

(7,885)

(5,507)

 6,658

4,923

 7,556

 5,599

                         

1. The average closing share price for the 20 days prior to 26 November 2018 was €1.3513

 

Summary of share-based payments financial year ended 31 March 2018

 

 

Opening balance

Paid

Provided1

closing balance

 

 

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

b. IMA performance-related payments payable to Vendors

8,586

6,895

(8,586)

(6,895)

7,332

5,079

7,332

5,079

b. IMA performance-related payments payable to employees

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

                           

1. The average closing share price for the 20 days prior to the financial year end was €1.448

Movements in share-based payments during the financial year - total amounts

 

As at 31 March 2019

 

As at 31 March 2018

 

 €'000

No of shares '000

 

 €'000

No of shares '000

Balance at beginning of financial year

8,783

6,183

 

9,467

7,603

Issue of ordinary shares in settlement of share-based payments

(7,546)

(5,242)

 

(8,586)

(6,895)

Share-based payments expense/cash settlement:

 

 

 

 

 

Cash-settled amounts

(339)

(265)

 

-

-

Provided during the financial year

                  6,677

              4,944

 

7,902

5,475

Forfeited and other minor movements

(19)

(21)

 

-

-

Share-based payments expense/cash settlement: - total

6,319

4,658

 

7,902 

5,475 

Balance at end of financial year

7,556

5,599

 

8,783

6,183

11.a     New remuneration policy effective from 27 November 2018

Since the expiry of the IMA arrangements on 26 November 2018, share-based payments arise only in relation to remuneration. The Group introduced a new Remuneration Policy during the year which was ratified by shareholders at the AGM on 31 July 2018. These arrangements are summarised below.

The new Remuneration Policy is designed to align with Irish and UK corporate governance best practice and comprises fixed remuneration with separate variable incentives (i.e. an annual bonus plan and a long-term incentive plan ("LTIP"). It also encompasses required minimum shareholding levels for Executive Directors.

Remuneration consists of the following:

1.     Basic pay

2.     Annual Bonus

3.     Long-term incentive plan ("LTIP")

The split between personal and Group performance targets is set depending on an employee's ability to influence Group outcomes, but all employees have an element of Group performance within their targets. All Group employees are eligible to participate in the Annual Bonus while the LTIP applies to Executive Directors and to members of the Senior Management Team and potentially others on a discretionary basis.

Only the Annual Bonus, further described below, commenced in the financial year ended 31 March 2019, the LTIP commences from 1 April 2019. Therefore only the Annual Bonus element of the new Remuneration Policy gives rise to share-based payment provisions in this financial year.

Full details on the new Remuneration Policy were presented in the Annual Report 2018.

Annual Bonus

The Annual Bonus is measured on personal and Group performance targets that are set by the Remuneration Committee every year. Each employee is assigned a target at the start of the financial year and the actual amounts are determined post year end and only after Group performance results have been audited. One third of the amount awarded consists of the grant of the option to acquire shares in the Company at nil cost subject to a three-year service condition. If the service condition is met, then the employees can exercise their option at any date after the third anniversary of the financial year to which they relate.

 This qualifies as an equity settled share-based payment under IFRS 2 Share-based Payments although it is settled net of taxes. IFRS 2 allows that this transaction is classified as equity-settled in its entirety if the entire share-based payment would otherwise be classified as equity-settled without the net settlement feature for taxes.

The variable incentive elements of the awards are subject to the absolute discretion of the Remuneration Committee and therefore the grant date will be the date when the award letter is presented to the participants setting out the number of deferred shares they have been granted as approved by the Remuneration Committee, i.e. when all the conditions are understood and agreed by the parties to the arrangement and any required approval process has been completed.

The deferred shares awarded under the Annual Bonus are subject only to continued employment. The fair value of the share award is therefore the number of Plan shares granted at the closing share price on the date of grant.

Employees have an expectation of this award from the start of the financial year to which they relate and therefore the award is amortised from the start of the financial year to which it relates to the vesting date after appropriate consideration of the impact of potential employee departures. Therefore, the value of the deferred shares for the period 27 November 2018 to 31 March 2019, €293k, is estimated as at January 2019, as this was the first date that participants received details of their potential Annual Bonus awards and what element would be deferred. The amount provided for in the period ended 31 March 2019 is €23k.

 

 

11.b    IMA performance-related payments to Vendors and staff

IMA performance-related payments refer to those payments that were made under the IMA for each financial year and settled mainly in shares of the Company until the expiry of the agreement on 26 November 2018. The Board considered how best to calculate any performance fees and other related payments for the final period of the IMA from 1 April 2018 to 26 November 2018. Since the IPD Ireland Index, which is used in the calculation of any relative performance fees, reports on a quarterly basis, the Board determined that it was most appropriate to measure the Group's performance to 31 December 2018, being the nearest quarter end, and to pro-rate any performance fees due for the fact that the final IMA period expired on 26 November 2018. Accordingly, the property portfolio was valued by Cushman & Wakefield as at 31 December 2018 and the Group produced management accounts to the same date. The increase in NAV to 31 December 2018 was pro-rated to 26 November 2018 and this resulted in a final performance fee of €5.4m and a final base fee top-up of €1.5m, both payable mainly in shares once the audit of the accounts for year ended 31 March 2019 is completed using a share price of €1.351, being the average closing price for the 20 trading days ending 26 November 2018.

A portion of the IMA performance-related payments, up to 15%, is set aside to fund employee bonus amounts that would have originally been paid by the Investment Manager. Approximately half of this, 7.5%, may be payable in cash. The balance payable in shares is deferred, subject only to continued employment, for two years after the end of the financial year to which they apply.

Shares are forfeited should the employee 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.

The final arrangements are summarised below.

Summary of IMA performance-related payments

 

 Financial year ended

31 March 2019

 

 Financial year ended

31 March 2018

 

€'000

 

€'000

Total IMA performance-related payments for the financial year

 5,401

 

 6,599

'Top-up' internalisation expenses (note 9)

 1,482

 

 1,743

Total

 6,883

 

 8,342

Of which are:

 

 

 

Payable to Vendors

6,073

 

 7,352

Payable to employees

810

 

 990

Total

 6,883

 

 8,342

Approximately €0.4m of the above total performance payment of €6.9m accrued will be paid in cash bonuses to staff, the balance of €6.5m will be payable in shares to staff and Vendors.

Shares issued relating to IMA 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 issued to Vendor recipients are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them. Employees who receive deferred share awards under these arrangements are paid the dividends accruing during the period prior to vesting through payroll.

IMA performance-related payments payable for the financial year ended 31 March 2019

IMA performance-related payments payable to Vendors

Grant date: 27 October 2015

Measurement date: The interim arrangements expired on 26 November 2018 as described above. The final amount of any IMA performance-related payments under this arrangement for the period from 1 April 2018 was measured at 31 December 2018 and calculated on a pro-rated basis to 26 November 2018.

 

 

Financial year ended 31 March 2019

 

Financial year ended 31 March 2018

Grant date: 27 October 2015

Measurement date: 26 November 2018

Share price

 €

€ '000

 

Number of shares '000

 

€ '000

 

Number of shares '000

Opening balance at start of financial year

 1.444

7,332

 

5,079

 

8,586

 

6,895

Payment made during the financial year

 

(7,334)

 

(5,079)

 

(8,586)

 

(6,895)

Amounts provided during the financial year:

 

 

 

 

 

 

 

 

IMA performance related payments

 

6,883

 

5,094

 

8,322

 

5,763

Less: payable to employees

 

(810)

 

(599)

 

(990)

 

(684)

Other amendments

 

(2)

 

 -

 

 -

 

 -

Net amount provided during the financial year

 

6,071

 

4,495

 

7,332

 

5,079

Closing balance at end of financial year

1.336

6,071

 

4,495

 

7,332

 

5,079

The settlement of IMA performance-related fees to the Vendors for the financial year ended 31 March 2018 was made on 20 July 2018, resulting in the listing of 5,078,809 new ordinary shares when the prior day's closing price of the Company's shares was €1.490.

The settlement of IMA 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 day's closing price of the Company's shares was €1.375.

IMA performance-related payments payable to employees

Grant date: 27 October 2015

Measurement date: The interim arrangements expired on 26 November 2018 as described above. The final amount of any IMA performance-related payments under this arrangement was measured at 31 December 2018 and calculated on a pro-rated basis to 26 November 2018.

 

 

Financial year ended 31 March 2019

 

Financial year ended 31 March 2018

Grant date: 27 October 2015

Measurement date: 26 November 2018

Share price

€ '000

 

Number of shares

'000

 

€ '000

 

Number of shares

'000

Opening balance at start of financial year

 1.444

1,373

 

1,044

 

881

 

708

Payment made during the financial year

 

 

 

 

 

 

 

 

Shares issued

 

(212)

 

(163)

 

 -

 

 -

Cash-settled share-based payments (taxes)

 

(223)

 

(177)

 

 -

 

 -

Cash-settled share-based payments

 

(116)

 

(88)

 

 -

 

 -

Total payments in financial year

 

(551)

 

(428)

 

 -

 

 -

Amounts provided during the financial year

 

 

 

 

 

 

 

 

IMA performance- related payments

 

810

 

606

 

990

 

680

Cash bonus element

(405)

 

(303)

 

(498)

 

(344)

Other amendments

 

(19)

 

(21)

 

 -

 

 -

Net amount provided during the financial year

 

386

 

282

 

492

 

336

Closing balance at end of financial year

 1.336

1,208

 

898

 

1,373

 

1,044

During this period, 346k shares vested under this arrangement. 163k shares were issued valued at €0.2m. The balance, 177k shares equivalent, was paid to Revenue in cash on the employees' behalf through normal payroll. €0.2m was released from the share-based payment reserve relating to these shares. The difference between the IFRS 2 value based on measurement date and the fair value at vesting date has been charged to staff costs in this period. No shares vested under this arrangement in the financial year ended 31 March 2018.

11.c     Employee long-term incentive plan - interim arrangements

Employees who fell outside 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, were also paid bonuses on a similar basis to those paid to the employees qualifying at b. above, except that the share-based payment is cash-settled. These shares are also subject to a two-year vesting period and this scheme also expired on 26 November 2018 when all employees moved to the new Remuneration Policy.

 

 

Financial year ended 31 March 2019

 

Financial year ended 31 March 2018

 

 

Share price €

€ '000

 

Number of shares

'000

 

€ '000

 

Number of shares

'000

 

Opening balance at start of financial year

78

 

60

 

-

 

-

Share-based bonus awards recognised

 

178

 

129

 

78

 

60

Closing balance at end of financial year

1.336

256

 

189

 

78

 

60

                                   

A further 0.3m shares (March 2018: 0.4m) are due to be recognised over the remainder of the vesting period.

12.     Finance income and expense

Accounting policy

Finance expenses directly attributable to the construction 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 income statement 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 2019

 

 Financial year ended

31 March 2018

 

 

 €'000

 

 €'000

Interest income on cash and cash equivalents

 

 5

 

7

Effective interest expense on borrowings

 

(6,803)

 

(6,243)

Early amortisation of arrangement fees on refinancing of bank borrowings

 

(1,423)

 

-

Finance expense-net

 

(8,221)

 

(6,236)

In December 2018 the Company refinanced the Group's borrowings (note 26.a). As a result €1.4m relating to arrangement fees on the refinanced borrowings were expensed in accordance with the relevant accounting policy.

Interest costs capitalised in the financial year were €0.6m (March 2018:€2.0m) 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.

Reconciliation of the income tax expense for the financial year

 

 

 Financial year ended

 31 March 2019

 €'000

 

 Financial year ended

 31 March 2018

 €'000

 

 

 

Profit before tax

 

 124,042

 

 107,132

Tax charge on profit at standard rate of 12.5%

 

 15,506

 

 13,392

Non-taxable revaluation surplus

 

(11,729)

 

(10,172)

REIT tax-exempt profits

 

(3,580)

 

(3,220)

Other (additional tax rate on residual income)

 

381

 

 21

Under provision in respect of prior periods

 

 5

 

 10

Income tax expense for the financial year

 

583

 

 31

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 2019

€'000

Financial year ended

31 March 2018

€'000

Interim dividend for the financial year ended 31 March 2019 of 1.5 cent per share

(March 2018: 1.1 cent per share)

10,465

7,616

Proposed final dividend for the financial year ended 31 March 2019 of 2.0 cent per share1

(March 2018: 1.9 cent per share)

13,969

13,254

Total

24,434

20,870

1. Based on shares in issue at close of business at 21 May 2019 of 693.9m along with the 4.5m of share to be issued in settlement of the IMA performance-related payments for the period ended 26 November 2018.

The Board has proposed a final dividend of 2.0 cent per share (March 2018: 1.9 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 2 August 2019. All of this proposed final dividend of 2.0 cent per share will be a Property Income Distribution ("PID") in respect of the Group's property rental business (March 2018: 1.9 cent). The total dividend, interim paid and final proposed for the financial year ended 31 March 2019 is 3.5 cent per share (March 2018: 3.0 cent per share) or €24.4m (March 2018: €20.9m).

Under the REIT regime, the Company is required to distribute a minimum of 85% of the Group's property rental business profits and the Group's dividend policy is to pay out 85-90% of its property rental business profits. The Company has complied with this requirement, the total dividends for the year ended March 2019 equate to 89% of EPRA earnings (March 2018: 108%).

 

 

 

15.     Earnings per share

There are no convertible instruments, options, or warrants on ordinary shares in issue as at 31 March 2019. However, the Company has established a reserve of €7.6m (March 2018: €8.8m) which is mainly for the issue of ordinary shares relating to the payment of IMA performance-related payments. It is estimated that approximately 6.0m ordinary shares (March 2018: 6.6m shares) will be issued in total, 5.6m of which are provided for at 31 March 2019 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

 

 Financial year ended

31 March 2019

 €'000

 

 Financial year ended

31 March 2018

 €'000

 

 

 

Issued share capital at beginning of financial year

 

 692,347

 

 685,452

Shares issued during the financial year

 

 5,242

 

 6,895

Shares in issue at financial year end

 

 697,589

 

 692,347

Weighted average number of shares

 

 694,968

 

 688,900

Number of shares to be issued under share-based schemes

 

6,028

 

 6,599

Diluted number of shares

 

700,996

 

 695,499

 

 

 

 

 

 

 

 

 Financial year ended

31 March 2019

'000

 

 Financial year ended

31 March 2018

'000

 

 

 

Number of shares due to issue under share-based schemes recognised at financial year end (note 11)

 

5,599

 

 6,183

Number of shares due under share-based schemes not recognised at financial year end1

429

 

 416

Number of shares to be issued under share-based schemes

 

6,028

 

 6,599

1. Included here are all amounts from share-based payments described in notes 11.a and 11.c which are either granted at the year-end or shortly after and which have not been recognised at year-end but will be recognised over the next two to three years.

Basic and diluted earnings per share (IFRS)

 Financial year ended

31 March 2019

 €'000

 

 Financial year ended

31 March 2018

 €'000

 

 

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

123,459

 

107,101

 

 

 

 

 

 

 

 

 

 

 

 

 

 '000

 

 '000

Weighted average number of ordinary shares (basic)

694,968

 

 688,900

Weighted average number of ordinary shares (diluted)

700,996

 

 695,499

Basic earnings per share (cent)

17.8

 

 15.5

Diluted earnings per share (cent)

17.6

 

 15.4

 

EPRA earnings per share and diluted EPRA earnings per share1

 

 Financial year ended

31 March 2019

 €'000

 

 Financial year ended

31 March 2018

 €'000

 

 

 

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

 

 123,459

 

 107,101

Less:

 

 

 

 

Gains and losses on investment property

 

(98,105)

 

(87,802)

Profit or (loss) on disposals of other assets

 

(140)

 

 -

Deferred tax in respect of EPRA adjustments

 

547

 

 -

Changes in fair value of financial instruments and associated close-out costs

 

 1,711

 

 104

EPRA earnings

 

 27,472

 

 19,403

 

 

 

 

 

 

 

 '000

 

 '000

Weighted average number of ordinary shares (basic)

 

 694,968

 

 688,900

Weighted average number of ordinary shares (diluted)

 

700,996

 

 695,499

EPRA earnings per share (cent)

 

 4.0

 

 2.8

Diluted EPRA earnings per share (cent)

 

 3.9

 

 2.8

1. EPRA Earnings per share is an alternative performance measure and is 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 NAV, EPRA NAV per share and total accounting return

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 movement of financial instruments and deferred tax. It is calculated on a diluted basis.

Total accounting return, a key performance indicator and alternative performance measure, is calculated as the increase in EPRA NAV per share over the previous financial year end EPRA NAV and adding back dividends per share paid, expressed as a percentage.

 

As at 31 March 2019

 

As at 31 March 2018

IFRS net assets at end of financial year (€'000)

 1,218,539

 

 1,111,730

Ordinary shares in issue ('000)

 697,589

 

 692,347

IFRS NAV per share (cent)

 174.7

 

 160.6

 

 

 

 

 

'000

 

'000

Ordinary shares in issue

 697,589

 

 692,347

Number of shares to be issued under share-based schemes (see note 15)

 6,028

 

 6,599

Diluted number of shares

 703,617

 

 698,946

 

 

 

 

Diluted IFRS NAV per share (cent)

 173.2

 

 159.1

 

 

 

 

 

€'000

 

€'000

IFRS net assets at end of financial year

 1,218,539

 

 1,111,730

Deferred tax

547

 

_

Net mark to market on financial assets

 288

 

 345

EPRA NAV

 1,219,374

 

 1,112,075

 

 

 

 

Diluted number of shares ('000)

703,617

 

698,946

EPRA NAV per share (cent)

 173.3

 

159.1

 

Total accounting return

 

As at 31 March 2019

 

As at 31 March 2018

Opening EPRA NAV per share

 159.1c

 

146.3c

Closing EPRA NAV per share

173.3c

 

 159.1c

Increase in EPRA NAV per share

14.2c

 

12.8c

Dividends per share paid in financial year

3.4c

 

2.55c

Total return

17.6c

 

15.35c

Total accounting return ("TAR")

11.1%

 

10.5%

The Company has established a reserve of €7.6m (March 2018: €8.8m) against the issue of approximately 5.6m ordinary shares relating to shares due to issue for payments due to the Vendors of the Investment Manager and employees as detailed in note 11.

Section III-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 property

Accounting policy

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 notes 2f and 2g.

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 of ownership 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.

Amendments to IAS 40 clarified the recognition of transfers into or out of investment property. In accordance with these amendments, the Group recognises or de-recognises investment property when the property meets or ceases to meet the definition of an investment property and there is evidence of the change in use. This amendment has no impact on the recognition of investment properties in the Group's consolidated statement of financial position.

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 its 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 13. 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 financial year ended 31 March 2019, 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 cash flows 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. Thus 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 complete, 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 €6.7m (March 2018: €6.8m) to the valuer's valuations to factor in the impact of the accounting policy on the recognition of rental incentives allowed to tenants and the costs of setting up leases. This deduction is a measure of the impact on the property valuation of the difference between cash and accounting approaches to the recognition of net rental income.

At 31 March 2019

 

Office assets

Level 3

 €'000

Office development assets

Level 3

 €'000

Residential assets

Level 3

 €'000

Industrial/land assets

Level 3

 €'000

Total

Level 3

 €'000

 

 

Fair value category

 

Carrying value at 31 March 2018

 1,017,937

 134,500

 138,480

 17,800

 1,308,717

Additions:

 

 

 

 

 

Property purchases

 2,956

-

 980

 36,094

 40,030

Development and refurbishment expenditure

 5,2441

 41,500

 60

 417

 47,221

Revaluations included in income statement

 35,259

 48,020

 13,559

(1,311)

 95,527

Disposals:

 

 

 

 

 

Sales2

(96,077)

 -

 -

 -

(96,077)

Transferred between segments3

 207,821

(207,821)

 -

 -

 -

Carrying value at 31 March 2019

 1,173,140

 16,199

 153,079

 53,000

 1,395,418

1. This includes capital expenditure on 1WML and 2DLC after their transfer to the office segment in the prior year.

2. New Century House and 77 Sir John Rogerson's Quay were sold or contracted to be sold during the year, generating €2.6m in gains in excess of their carrying values.

3. 2WML (formerly the Hanover Building) and 1SJRQ were transferred from 'Office development assets' to 'Office assets' as they were completed before 31 March 2019.

 

At 31 March 2018

 

Office assets

Level 3

 €'000

Office development assets

Level 3

 €'000

Residential assets

Level 3

 €'000

Industrial/land assets

Level 3

 €'000

Total

Level 3

 €'000

 

 

Fair value category

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 in excess of their carrying values.

2. 2WML (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.

There were no transfers between fair value levels during the financial year. Approximately €0.6m of financing costs were capitalised at an effective interest rate of 2.05% in relation to the Group's developments and major refurbishments (March 2018: €2.0m). 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

1,173

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 (2022) and on a residual basis thereafter.

-       Marine House and Clanwilliam Court Blocks 1, 2 and 5 are valued on an investment basis until the end of the leases (2020 and 2021 respectively) and on a residual basis thereafter.

 

No change in valuation technique except:

-       Marine House and Clanwilliam Court Blocks 1, 2 and 5 at 31 March 2018 were valued on an investment basis but are now valued on an investment basis until the end of the leases (2020 and 2021 respectively) and on a residual basis thereafter.

 

Office development assets

16

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, allowances for purchasers' costs, assumptions for voids and/or rental free periods).

-       Total Development Cost ("TDC"): this includes, but is not limited to, construction costs, land acquisition costs, professional fees, levies, marketing costs and finance costs.

-       Profit or "Profit on Cost" which  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 except that 2WML changed from a residual to an investment basis during the financial year.

 

Residential assets

153

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

 

No change in valuation technique.

Industrial/land assets

 53

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

The Newlands /Gateway site, including adjacent lands, is valued as an early stage development site on a price per acre basis.

 

No change in valuation technique.

 

Reconciliation of the independent valuer's valuation report amount to the carrying value of investment property in the Consolidated statement of financial position:

 

As at 31 March 2019

€'000

 

As at 31 March 2018

€'000

Valuation per valuer's certificate

 1,407,740

 

 1,320,581

Owner occupied (note 18)

(5,643)

 

(5,029)

Income recognition adjustment1

(6,679)

 

(6,835)

Investment property balance at financial year end

 1,395,418

 

 1,308,717

1. Income recognition adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cash flow based approach while income recognition for accounting purposes spreads the costs of tenant incentives and lease set up 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 capped by agreement with the contractors 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, are not generally directly observable and therefore classified as Level 3. Yields depend on the valuer's assessment of market capitalisation rates and are therefore Level 3 inputs.

The tables below summarise the key unobservable inputs used in the valuation of the Group's investment properties at 31 March 2019. 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 mainly 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 property

31 March 2019

 

Market

value

€'000

Estimated rental value

Equivalent yield

Low

 High

Low

High

Office

1,173,140

€15.00 psf

€60.00 psf

4.04%

7.30%

Office development

16,199

€30.00 psf

€57.50 psf

4.75%

4.75%

Residential1

153,079

€23,400 pa

€31,800 pa

5.16%

6.00%

Industrial/land

53,000

€5.25 psf

 €5.25 psf

8.02%

8.02%

1. Average ERV based on a two-bedroom apartment; yields are gross

31 March 2018

 

Market

value

€'000

Estimated rental value.

Equivalent yield

Low

 High

Low

High

Office

1,017,937

€20.00 psf

 €60.00 psf

4.56%

7.17%

Office development

134,500

€30.00 psf

€58.00 psf

4.75%

5.25%

Residential1

138,480

€19,800 pa

€ 31,800 pa

5.20%

6.43%

Industrial/land

17,800

€5.50 psf

€5.50 psf

7.45%

7.45%

1. Average ERV based on a two-bedroom apartment, yields are gross.

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 2019, the Group's investment property portfolio would increase or decrease in value by approximately €62m (March 2018: €60m). A 25bp increase in equivalent yields would decrease the value of the portfolio by €83m (March 2018: €69m) and a 25bp decrease results in an increase in value of €95m (March 2018: €78m).

31 March 2019

 

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

Sensitivities

Increase €'m

Decrease €'m

Increase €'m

Decrease €'m

Office

52.6

(53.7)

(72.8)

80.2

Office development

1.9

(2.0)

(2.1)

2.2

Residential

7.5

(7.5)

(8.2)

12.1

Industrial/land

0.1

(0.1)

(0.1)

0.1

Total

62.1

(63.3)

(83.2)

94.6

 

 

31 March 2018

 

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

Sensitivities

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/land

0.5

(0.6)

(0.4)

0.4

Total

59.7

(59.7)

(69.0)

78.0

 

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 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 cost 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 2019

Group

 

Land and building

€'000

Office and computer equipment

 €'000

Leasehold improvements and fixtures and fittings

 €'000

Total

 €'000

 

Cost or valuation

 

 

 

 

At 1 April 2018

 5,219

 161

 590

 5,970

Additions

-

46

 6

 52

Revaluation recognised in other comprehensive income

 723

-

-

 723

At 31 March 2019

 5,942

 207

 596

 6,745

Depreciation

 

 

 

 

At 1 April 2018

(190)

(104)

(265)

(559)

Charge for the year

(109)

(48)

(127)

(284)

At 31 March 2019

(299)

(152)

(392)

(843)

Net book value at 31 March 2019

 5,643

55

 204

 5,902

 

At 31 March 2018

Group

 

Land and buildings

€'000

Office and computer equipment

 €'000

Leasehold improvements and fixtures and fittings

 €'000

Total

 €'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

Land and buildings, 54% of South Dock House, was revalued at 31 March 2019 and at 31 March 2018 by the Group's independent valuer and in accordance with the valuation approach described under note 17. It was measured at fair value at the period 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 2019

 

31 March 2018

ERV per sq. ft.

 

€57.50

 

€52.50

Equivalent yield

 

5.0%

 

5.0%

 

 

19.     Non-current assets classified as held for sale

 

Financial

year ended

31 March 2019

€'000

Financial

year ended

31 March 2018

€'000

Balance at start of financial year

534

385

Recognised during the year

-

149

Balance at end of financial year

534

534

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 (March 2018: €5.0m) before tax and after costs. The Directors have therefore concluded that the fair value of these assets is at least their carrying value.

The balance carried forward from 31 March 2018 contains some assets which remain from a portfolio of assets deemed not to be part of the Group's core property rental business. There have been unforeseen delays beyond the Group's control in the sales of these assets but the Directors expect that the assets will be sold in the near future and they are therefore retained as held for sale.

Section IV-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.

Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability of another entity. The Group has identified financial assets and liabilities in its financial position and the accounting policy for these is summarised in this note. Financial instruments may be further analysed between current and non-current depending on whether these will fall due within 12 months after the balance sheet date or beyond.

Financial assets: This classification depends on the business model and the contractual terms of the cash flows. Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal or interest are measured at amortised cost. Financial assets measured at amortised cost are principally trade receivables. At initial recognition the Group measures the financial assets at fair value plus (except for those at fair value through profit or loss) transaction costs.

On initial recognition the Group classifies its financial assets in the following measurement categories:

·       those to be measured subsequently at fair value (either through other comprehensive income ("OCI") or through profit or loss); and

·       those to be measured subsequently at amortised cost.

The Group's financial assets comprise trade and other receivables, loans receivable and derivative instruments.

The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. On de-recognition of a financial asset, the difference between the carrying amount of the asset and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. Relevant costs incurred with the disposal of a financial asset are deducted in computing the gain or loss on disposal.

Financial liabilities: These are initially recognised at the fair value of the considerations received less directly attributable transaction costs. Subsequent to initial recognition, financial liabilities are recognised at amortised costs. The difference between the recognition value and the redemption value is recognised in the income statement over the contractual terms using the effective interest rate method. This category includes trade and other payables and borrowings. Financial liabilities are de-recognised in full when the Group is discharged from its obligation, they expire, or they are replaced by a new liability with substantially modified terms.

The Group's non-equity financing is all unsecured and comprises a revolving credit facility and private placement notes. The majority of this debt is fixed rate or hedged through derivatives o protect against major rises in 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 or payments (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 financial asset or liability, or, where appropriate, a shorter period, to the gross carrying amount of a financial asset or the amortised cost of a financial liability.

Impairment of financial assets: The Group recognises a loss allowance for expected credit losses on debt instruments, trade receivables and other financial assets. The amount of expected credit losses ("ECL") is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognises lifetime ECL for trade receivables (see note 22). For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12month ECL. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

In order to perform this assessment, the Group classifies its assessment into three stages:

-        Stage 1 includes financial assets that are expected to perform in line with their contractual terms and which have no signs of increased credit risk since initial recognition. 12-month expected credit losses are recognised.

-        Stage 2 includes financial assets where the credit risk has significantly increased since initial recognition but which are not yet credit impaired. Lifetime credit losses are recognised.

-        Stage 3 applies to credit-impaired financial instruments

20.     Cash and cash equivalents

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

Cash and cash equivalents

22,372

22,521

Cash and cash equivalents includes cash at banks in current accounts and deposits held on call with banks. The management of cash and cash equivalents is discussed in note 31.d, Please also refer to note 26.b on the net debt calculations. In addition, the Company holds funds in excess of its regulatory 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. Those that are held within a business model to collect contractual cash flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding are measured at amortised cost. Loans that are not held within this model are measured at fair value through profit or loss.

Derivatives: The Group utilises derivative financial instruments to hedge interest rate exposures on its borrowings. Derivatives designated as hedges against interest risks are accounted for as cash flow hedges. Hedge relationships are documented at inception. This documentation identifies the hedge, the item being hedged, the nature of the risks being hedged and how the effectiveness is measured during its duration. Hedges are measured for effectiveness at each accounting date and the accounting treatment of changes in fair value revised accordingly. The Group's cash flow 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 expenses.

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

 

 

Derivatives at fair value

 194

 

 88

Loans carried at fair value through profit or loss

-  

 

 152

Balance at end of financial year end - current

 194

 

 240

Cash flow hedges are the Group's hedging instruments on its borrowings. The Group has a policy of having the majority of its interest rate exposure on its debt hedged or fixed. As at 31 March 2019, as well as having €75m of fixed coupon private placement notes, it has hedged the interest rate exposure on €225m of its revolving credit facility (March 2018: €245m) using a combination of caps and swaptions to limit the EURIBOR element of interest payable to 1% on €100m and 0.75% on €125m.

Loans carried at fair value through profit or loss consisted of one loan which was repaid by the sale of the underlying property during the financial year. This loan was acquired by the Group as part of a portfolio of loans which were settled by the sale of collateral. It was reclassified from "carried at amortised costs" to "carried at through FVPL" on 1 April 2018 as part of the implementation of IFRS 9. There was no impact on retained earnings as a result of this reclassification.
 

22.     Trade and other receivables

Accounting policy

Trade and other receivables are initially recognised when they are originated. Trade and other receivables that do not contain significant financing components, which is assessed at initial recognition, are measured at the transaction price. Trade receivables that are held within a business model where the objective is to hold the financial asset in order to collect cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest are recognised at fair value at the recognition date and subsequently measured at amortised cost using the effective interest rate method.

As trade receivables do not contain a significant financing element the Group has adopted a simplified approach to calculating impairment losses. Expected credit losses on trade receivables are estimated using a provision matrix which uses a fixed provision rate based on the number of days a trade receivable is outstanding.

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

Non-current

 

 

 

Property income receivables

 7,163

 

 5,681

Other receivables

 765

 

 2,106

Balance at end of financial year - non-current

 7,928

 

 7,787

Current

 

 

 

Receivable from investment property sales

 34,639

 

 -

Deposits paid on investment property

 145

 

 -

Prepaid remuneration1

 -  

 

 2,679

Property income receivables

 4,105

 

 2,885

Prepayments

 548

 

 1,077

Recoverable capital expenditure

 314

 

 416

Income tax refund due

 54

 

 102

VAT refundable

 359

 

 80

Balance at end of financial year - current

 40,164

 

 7,239

Balance at end of financial year - total

 48,092

 

 15,026

Of which are classified as financial assets

37,630

 

 2,092

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

The non-current balance is mainly non-financial in nature; €0.8m (March 2018: €0.5m) relates to amounts receivable from two tenants in relation to capital expenditure funded initially by the Group, with the balance consisting of deferred income and expenditure amounts relating to the lease incentives and deferred lease costs. €34.6m was receivable in respect of a property sale; the balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (note 31.d).

Trade receivables are managed under a "held to collect" business model. The cash collected represents principal and interest where applicable. The trade receivables have been assessed under the simplified credit loss approach using a provision matrix which refers to the number of days that they have been outstanding. Balances at 31 March 2018 were assessed during the implementation of IFRS 9 (notes 3 and 37). There is no material provision for lifetime expected credit losses required either at 31 March 2019 or 1 April 2018.

 

 

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.

 

Financial year ended

31 March 2019

 

Financial year ended

31 March 2018

 

 

No. of shares in issue

'000

Share capital

€'000

Share premium

€'000

Total

€'000

 

No. of shares in issue

'000

Share capital

€'000

Share premium

€'000

Total

€'000

Balance at beginning 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 (see below)

5,242

524

7,022

7,546

 

6,895

690

7,896

8,586

Balance at end of financial year

697,589

69,759

624,483

694,242

 

692,347

69,235

617,461

686,696

Shares issued during the period are as follows:

5,241,805 ordinary shares with a nominal value of 0.10 were issued during the period in settlement of share-based payments totalling €7.5m (note 11): 162,996 shares were issued on 9 April 2018 and 5,078,809 shares were issued on 20 July 2018 and the associated costs were €14k.

Share capital

Ordinary shares of €0.10 each:

 

Financial year ended

31 March 2019

'000 of shares

 

Financial year ended

31 March 2018

'000 of shares

Authorised

1,000,000

1,000,000

Allotted, called up and fully paid

697,589

692,347

In issue at end of financial year

697,589

692,347

There are no shares issued which are not fully paid.

Share premium: On 23 May 2019 the Group announced its intention to undertake a share capital reorganisation to convert a substantial part of its share premium into distributable reserves. A resolution will be proposed at the Group's AGM on 31 July 2019 and, if approved, the Group will proceed through the Court process necessary to enact the capital reorganisation.

Under the terms of the agreement under which the Group internalised the Investment Manager, the Vendors were entitled, until 26 November 2018, 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 2019 amounted to €7.6m at the financial year end (March 2018: €8.8m) and are all payable in shares (note 11). A further 5.6m shares are expected to be issued in relation to these payments.

24.     Other reserves

 

As at 31 March 2019

 €'000

As at 31 March 2018

 €'000

Property revaluation

 1,889

 1,166

Cash flow hedging

(288)

(329)

Share-based payment reserve

 7,556

 8,783

Balance at end of financial year

9,157

 9,620

24.a     Property revaluation reserve

 

As at 31 March 2019

 €'000

As at 31 March 2018

 €'000

Balance at beginning of financial year

 1,166

 509

Increase arising on revaluation of properties

 723

 657

Balance at end of financial year

 1,889

 1,166

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). If disposed, the property revaluation reserve relating to the premises sold will be transferred directly to retained earnings.

24.b    Cash flow hedging reserve

The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve 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 period are included in the following line items:

 

As at 31 March 2019

 €'000

As at 31 March 2018

 €'000

Balance at beginning of financial year

(329)

(217)

Released to profit and loss

-

 58

Gain/(loss) arising on fair value of hedging instruments entered into for cash flow hedges

 41

(170)

Balance at end of financial year

(288)

(329)

 

24.c     Share-based payment reserve

 

As at 31 March 2019

 €'000

As at 31 March 2018

 €'000

Balance at beginning of financial year

 8,783

 9,467

IMA performance-related payments provided

6,658

 7,902

Settlement of 2018 performance fees

(7,885)

(8,586)

Balance at end of financial year

 7,556

 8,783

The share-based payment reserve comprises amounts reserved for the issue of shares in respect of IMA performance-related and other payments. These are discussed further in note 11.

25.     Retained earnings, distributable reserves and dividends on equity instruments

Retained earnings

 

Financial year ended

31 March 2019

 €'000

 

Financial year ended 31 March 2018

 €'000

 

Balance at beginning of financial year

 415,414

 

 325,983

Profit for the financial year

 123,459

 

 107,101

Share issuance costs

(14)

 

(14)

Dividends paid

(23,719)

 

(17,656)

Balance at end of financial year

 515,140

 

 415,414

Distributable reserves - Company only

 

 

Financial year ended 31 March 2019

 €'000

 

Financial year ended 31 March 2018

 €'000

 

 

 

Retained earnings at end of financial period (Company only)

 

436,014

 

344,758

Unrealised gains on investment property1

 

(388,791)

 

(320,501)

Dividends payable post period end (estimated) (note 14)

 

(13,969)

 

(13,254)

Distributable earnings after post period end dividends

 

33,254

 

11,003

1Unrealised intercompany profits arising on the transfer of investment properties to subsidiaries of the Company have been eliminated for the purpose of the above calculation

In August 2018 a dividend of 1.9 cent per share (€13.3m) and in January 2019 an interim dividend of 1.5 cent per share (€10.5m) were paid to the holders of fully paid ordinary shares.

The Directors confirm that the Company continues to comply with the dividend payment obligations contained within the Irish REIT legislation.

26.     Financial liabilities

Accounting policy

A financial instrument is classified as a financial liability where it contains an obligation to repay. These are accounted for at amortised cost. Financial liabilities that are classified as amortised cost are initially measured at fair value minus any transaction costs. Accounting at amortised cost means that any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss or capitalised into investment property over the period of the borrowings using the effective interest method (see Section IV introduction).

26.a     Borrowings

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

Non-current

 

 

 

Unsecured bank borrowings

 156,524

 

 218,409

Unsecured private placement notes

 74,524

 

-

 Total non-current borrowings

 231,048

 

 218,409

Current

 

 

 

Unsecured bank borrowings

 149

 

 809

Unsecured private placement notes

 358

 

  -  

 Total current borrowings

 507

 

 809

Total borrowings

 231,555

 

 219,218

 

 

 

 

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

The maturity of non-current borrowings is as follows:

 

 

 

Less than one year

 507

 

 809

Between one and two years

-

 

 -

Between two and five years

 156,524

 

218,409

Over five years

 74,524

 

-

Total

 231,555

 

 219,218

Movements in borrowings during the financial year:

 

Financial year ended

31 March 2019

€'000

Financial year ended

31 March 2018

 €'000

Balance at beginning of financial year

219,218

171,138

Bank finance drawn during the financial year

340,412

86,454

Bank finance repaid during the financial year

(326,372)

(39,674)

Interest payable1

(1,703)

1,300

Balance at end of financial year

231,555

219,218

1. Balance in the current year is negative due to the capitalisation of arrangement fees on the refinancing of the RCF and the issue of private placement notes.

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 and a through cycle leverage target of 20-30% loan-to-value ("LTV"). Under the Irish REIT rules the LTV ratio must remain under 50%. The Group has no finance leases.

In December 2018, the Group refinanced its €400m secured revolving credit facility ("RCF"), which was due to expire in November 2020, with €395m of debt comprising:

·      A €320m unsecured revolving credit facility expiring 19 December 2023; and

·      €75m of unsecured US private placement notes, €37.5m dated 23 January 2026 and €37.5m 23 January 2029, with fixed rate coupons of 2.36% and 2.69%, respectively

The unsecured revolving credit facility has a five-year term and is provided by Bank of Ireland, Wells Fargo, Barclays Bank Ireland and Allied Irish Bank. This facility is denominated in euro and is subject to a margin of 2.0% over three-month EURIBOR. The Group has entered into derivative instruments so that the majority of its EURIBOR exposure is capped at 1% or 0.75% in accordance with the Group's hedging policy (note 31.d.ii)

The private placement notes have an average maturity of 8.3 years at 31 March 2019 and were placed with a single institutional investor. Coupons are fixed so long as the Group's credit rating remains at investment grade.

Where debt is drawn to finance material refurbishments and developments that take a substantial period of time to take into use, the interest cost of this debt is capitalised.

All costs related to financing arrangements are amortised using the effective interest rate. The Directors confirm that all covenants have been complied with and are kept under review.

26.b    Net debt reconciliation and LTV

Net debt and LTV are key metrics in the Group. Net debt is redemption value of borrowings as adjusted by cash available for use. LTV or "Loan to Value ratio" is the ratio of net debt to investment property value at the measurement date.

 

 

 

 

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 22,372

 

 22,521

Cash reserved 1

 

 

 

 

(5,050)

 

(4,830)

Gross debt - fixed interest rates

 

 

 

 

(75,000)

 

-

Gross debt - variable interest rate

 

 

 

 

(159,413)

 

(220,373)

Net debt at period end

 

 

 

 

(217,091)

 

(202,682)

Investment property at period end

 

 

 

 

1,395,418

 

1,308,717

Loan to value ratio

 

 

 

 

15.6%

 

15.5%

1. Cash is reduced by the amounts held in relation to rent deposits, sinking funds and similar arrangements as these balances are not viewed as available funds for the purposes of the above calculation.

Reconciliation of opening to closing net debt:

 

 

Assets

 

Liabilities

 

Total

 

 

Cash and cash equivalents

 

Secured borrowings

Unsecured borrowings

Private placement notes

 

 

 

 

 €'000

 

 €'000

 €'000

 €'000

 

 €'000

Net debt due as at 1 April 2017

 

 18,148

 

(173,593)

 -

 -

 

(155,445)

Cash inflow

 

 -

 

(86,454)

 -

 -

 

(86,454)

Cash outflow

 

 -

 

39,674

 -

 -

 

39,674

Movement in cash and cash equivalents

 

4,373

 

-

 -

 -

 

4,373

Movement in cash reserved 1

 

(4,830)

 

-

 -

 -

 

(4,830)

 Net debt as at 31 March 2018

 

17,691

 

(220,373)

 -

 -

 

(202,682)

 

 

 

 

 

 -

 -

 

 

Restatement on adoption of IFRS 9

 

 -

 

 -

 -

 -

 

-

 Net debt at as at 1 April 2018

 

 17,691

 

(220,373)

 -

 -

 

(202,682)

Cash inflow

 

 -

 

(31,000)

(234,413)

(75,000)

 

(340,413)

Cash outflow

 

 -

 

251,373

75,000

 -

 

326,373

Movement in cash and cash equivalents

 

(149)

 

 -

 -

 -

 

(149)

Movement in cash reserved 1

 

(220)

 

 -

 -

 -

 

(220)

 Net debt as at 31 March 2019

 

 17,322

 

 -

(159,413)

(75,000)

 

(217,091)

 1. Cash is reduced by the amounts held in relation to rent deposits, sinking funds and similar arrangements as these balances are not viewed as available funds for the purposes of the above calculation.

 

27.     Deferred tax liabilities

Accounting policy

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are only recognised where it is probable that the amounts will be recoverable.

The Group is not generally liable for corporate taxes as it has REIT status (see note 13). Where it is anticipated that certain assets may not qualify as assets of the property rental business (defined in legislation), deferred tax liabilities may be recognised on unrealised gains recognised on these assets as future taxes may be payable on these gains. There were no unrecognised deferred tax assets in the period that might be available to offset against these liabilities.

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

The balance comprises temporary differences attributable to:

 

 

 

Unrealised gains on residual business

547

 

  -

 

28.     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.

 

As at 31 March 2019

 €'000

 

As at 31 March 2018

 €'000

 

 

Current

 

 

 

Investment property payable

 5,667

 

 5,118

Rent prepaid

 7,013

 

 7,313

Rent deposits and other amounts due to tenants

 1,222

 

 1,569

Sinking funds

 1,926

 

 2,053

Trade and other payables

 3,742

 

 3,540

PAYE/PRSI payable

 293

 

 163

Balance at end of financial year

 19,863

 

 19,756

 

 

 

 

Of which classified as financial instruments

3,231

 

 1,369

Cash is held against balances due for service charges prepaid and sinking fund contributions, €3.9m (March 2018: €3.6m), and rental deposits from tenants, €1.2m (March 2018: €1.2m). Sinking funds are monies put aside from annual service charges collected from tenants as contributions towards expenditure on larger maintenance items that occur at irregular intervals 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 trade and other payables approximates to their fair value.

29.     Contract liabilities

Accounting policy

Contract liabilities arise as a result of service charge contracts, the accounting for which is discussed in note 5.

Contract liabilities arise from service charge payables. Service charge arrangements form a single performance obligation under which the Group purchases services for multi-let buildings and recharges them to tenants. The movements for the purchase of services and income relating to these activities are presented below. The comparative numbers for 31 March 2018 were previously included in trade and other payables (note 28) but have been separately presented here for clarity.

 

 

Total

€'000

 

 

Contract liabilities at 1 April 2017

 

 861

(Revenue)/expense recognised during the period

 

 205

Amounts received from customers under contracts

 

 4,853

Amounts paid to suppliers

 

(4,174)

Contract liabilities at 31 March 2018

 

 1,745

 

 

 

(Revenue)/expense recognised during the period

 

 243

Amounts received from customers under contracts

 

 6,311

Amounts paid to suppliers

 

(6,291)

Contract liabilities at 31 March 2019

 

 2,008

 

30.     Cash flow information

30.a     Non-cash movements in operating profit

 

 

Financial year ended

 31 March 2019

€'000

Financial year ended

31 March 2018

€'000

 

Notes

Revaluation of investment property

17

(95,527)

(81,377)

Share-based payments

11

6,658

 7,902

Prepaid remuneration expense

9

 2,679

 4,444

Depreciation

18

284

285

Deferred tax

27

547

-

Non-cash movements in operating profit

 

(85,358)

(68,746)

30.b    Cash expended on investment property

 

 

Financial year ended

31 March 2019

€'000

Financial year ended

 31 March 2018

€'000

 

Notes

Property purchases

17

 40,030

 39,158

Development and refurbishment expenditure

17

47,221

 50,185

Financing arrangement fee write-off

 

-

(522)

Deposit paid on investment property

 

 145

-

(Increase) /decrease in investment property costs payable

 

(549)

 4,966

Cash expended on investment property

 

86,847

93,787

30.c &