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Hibernia REIT PLC   -  HBRN   

HALF YEARLY FINANCIAL REPORT

Released 07:00 12-Nov-2019

RNS Number : 0428T
Hibernia REIT PLC
12 November 2019
 

 

HALF YEARLY FINANCIAL REPORT

For the six month period to 30 September 2019

 

12 November 2019


Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces interim results for the six months to 30 September 2019. Highlights for the period:

Steady portfolio performance

·      Portfolio value of €1,423.7m[1], up 0.6%[2] in the period (active developments up 4.5%2)

·      Six-month total property return[3] of 2.4% vs MSCI Ireland Property Index (excl. Hibernia) of 3.1%

·      EPRA NAV per share4 of 175.7 cent, up 1.4% in the period (March 2019: 173.3 cent)

Strong growth in distributable income from increasing rent roll and reduced costs

·      Annual contracted rent of €62.0m, up 7.6% since March 2019, mainly due to net new lettings and rent reviews

·      EPRA like-for-like net rental growth4 of 9.1% in the period

·      Net rental income of €28.6m, up 7.3% on the same period last year (September 2018: €26.6m)

·      Operating cost savings of €4.7m versus prior year period following expiry of IMA in November 2018

·      EPRA EPS4 of 2.8 cent, up 55.6% on the same period last year (September 2018: 1.8 cent)        

·      Interim dividend declared of 1.75 cent per share, up 16.7% on prior year (2018: 1.5 cent)

Further rental growth potential in the near term

·      Unlet space with ERV of €7.8m (March 2019: €8.0m): office vacancy of 12% by area (March 2019: 12%)

·      2 Cumberland Place development due to complete in Q3 2020 (ERV: €3.2m)

·      Reversionary potential of portfolio of €1.1m with avg. period to capture of 2.6 years for in-place CBD offices

Disciplined capital allocation continues

·      Net sales proceeds in FY19 of €60.3m are being reinvested or returned to shareholders

-       €17.6m invested in five acquisitions, three of which were "bolt-on" in nature

-       €9.3m invested in capital expenditure on developments in the period

-       €25m share buyback launched in April 2019 and completed on 11 November 2019: 17.6m shares bought back and cancelled at an average price of 142.3 cent per share

Good progress with committed development and longer-term pipeline

·      2 Cumberland Place expanded by 12% to 56,000 sq. ft. of new Grade A offices: Q3 2020 completion now expected

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

-       Provisional planning granted for 152,000 sq. ft. redevelopment of Clanwilliam Court, subject to appeal

-       Addition of Malahide Road: 3.8 acre industrial site with mixed-use potential in longer term

Robust balance sheet

·      Net debt4 at 30 September 2019 of €221.5m, LTV4 of 15.6% (March 2019: €217.1m, LTV4 15.6%)

-       Weighted average debt maturity at September 2019 of 4.8 years (March 2019: 5.4 years)

·      Significant funding capacity: cash and undrawn facilities of €173.5m, €133.3m net of committed expenditure

Improving sustainability performance

·      Three star GRESB rating in 2019, with score +17pp on prior year

·      Full-time Sustainability Manager joining in January 2020

Tax changes announced in Budget 2020 and effective 9 October 2019 (post period end)

·      Increase in stamp duty on commercial property transactions from 6% to 7.5%: if effective as at 30 September 2019 it would have reduced portfolio value by an estimated €22m and EPRA NAV per share by an estimated 3.3 cent

·      For details on the other changes and their potential impact, please see the Financial Review section of this release

 

 

Kevin Nowlan, Chief Executive Officer of Hibernia, said:

"We have made good progress in the first half of the financial year, with net new lettings and rent reviews enabling us to increase our contracted rent roll by 8% to €62m, and EPRA earnings growing by 50% versus the same period last year. With €11m of potential incremental rent (per our independent valuer) to come from leasing the remaining available space in the existing portfolio and our 2 Cumberland Place development, there is a significant opportunity for us to grow our income further in the near term and this remains a high priority for us.

"We are also working hard to unlock the value within our development pipeline, with the key achievements in the period being the grant of planning to expand our 2 Cumberland Place scheme and the preliminary planning permission received for the redevelopment of Clanwilliam Court, which is subject to appeal.  In addition, we have made a number of small bolt-on acquisitions, expanding and improving our pipeline.

"Whilst Ireland continues to have one of the fastest growing economies in the EU, business and consumer sentiment have softened in recent months, consistent with global trends.  We have also seen some evidence of smaller occupiers deferring decisions on leasing space given the current geopolitical uncertainty.  Nonetheless, overall tenant demand for offices and apartments in Dublin remains high and job creation from foreign direct investment is near record levels.

"It remains to be seen how the Irish property investment market reacts to the tax changes announced by the Government in the recent Budget.  Our business has low leverage, a talented team and an exciting pipeline of potential development projects and we are well-positioned to take advantage of whatever opportunities arise."


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 8.30 a.m. today, 12 November 2019: a conference call facility will be available to listen to the presentation live using the following details: 

Ireland dial-in: +353 (0)1 431 1252 
UK dial-in: +44 (0)3 333 000 804     
US dial-in: +1 (0)1 631 913 1422
All other locations: +44 (0)3 333 000 804
Access Code: 19145447#

 

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.

 

 

Market review

General economy

While Ireland's economy is expected to be one of the fastest growing in the euro area in 2019 and foreign direct investment ("FDI") remains strong, it is not immune from the global economic backdrop of slowing growth as concerns around trade and geopolitics persist: Goodbody now expects core domestic demand to grow 3.6% in 2019 and 3.2% in 2020, down from 4.5% and 3.7%, respectively, when we reported in May 2019.

Irish GDP growth is forecast at 4.0% in 2019 and 2.8% in 2020 versus 1.2% and 1.4% for the euro area, respectively (source: Goodbody), helped by continuing low levels of unemployment, which stood at 4.8% at October 2019 (source: the Central Statistics Office ("CSO")), consumer spending and growth in exports. FDI in Ireland continues to be strong: 8,175 IDA-sponsored jobs have been created in the first nine months of 2019, up 10% on the same period last year and, at the current run rate, 2019 looks set to be another record year for FDI job creation in Ireland (source: Goodbody, IDA). Employment in Dublin remains buoyant with the latest data from the CSO (Q2 2019) showing that there are 717,000 people employed, up from 695,000 a year earlier. The unemployment rate in Dublin at Q2 2019 was 4.4%, down from 5.3% a year earlier. Despite these strong fundamentals, recent economic data indicates activity is slowing and investment decisions are being delayed: Ireland's composite PMI (Purchasing Managers' Index) reading for October 2019 was 50.6, down from the 2018 average of 57.1 but still in expansionary territory (i.e. above 50) (source: Markit Economics / Bloomberg). Recent statistics released by the CSO also indicate a slowdown in core investment which, as Goodbody notes, is likely to stem mainly from the uncertainty around the UK's departure from the EU ("Brexit"): core investment grew by 1% year-on-year in Q2 2019 having been as high as 15% year-on-year in Q2 2018 (source: Goodbody). The recent rapid growth in the Irish economy and employment is eroding already limited spare capacity (source: CBI) and increasing the risks of wage inflation and a loss of competitiveness. Pay increases of 3.7% in 2019 and 4.1% in 2020 are expected versus overall inflation expectations of 0.8% and 1.1%, respectively (source: CBI). In the construction sector tender prices grew by 3.4% in the first half of 2019, largely as a result of rising labour and material costs (source: SCSI).

The CBI identifies Brexit as the most material external risk to Irish growth alongside risks in relation to international trade, taxation and a slowdown in the global economy. Given the uncertainty around how Brexit will unfold, growth forecasts for the Irish economy are subject to a high margin of error with both large downside and upside risks. In light of this, the Irish Government has taken a cautious approach and based its recent Budget 2020 on the assumption of a "no-deal" Brexit, estimating that GDP would fall to 0.7%, investment would fall by 24% and unemployment would increase to 5.7%. (Goodbody, Department of Finance). As part of Budget 2020, the Irish Government announced that stamp duty on commercial property transactions would increase from 6.0% to 7.5%, which is estimated to have a one-off negative impact of around 1.5% on commercial property values as it will increase purchasers' costs by the same amount (see further details on the tax changes in the Financial Review section).

Irish property investment market

In the 12 months to 30 September 2019 the MSCI Ireland Property Index All Benchmark excluding Hibernia (the "Index") delivered a total return of 6.3% (September 2018: 6.9%). Over this period the industrial sector was the top performer with a total return of 10.0% followed by the office sector at 7.4% and "other" - which includes multi-family residential or private rental stock ("PRS") - at 3.8% (September 2018: 8.8%, 7.9% and 12.2%, respectively). Yields have remained broadly constant in the office sector since late 2017, with the agent consensus between 4.00% and 4.25%, while PRS yields are currently between 3.85% and 4.00% and are trending tighter (source: Cushman & Wakefield, CBRE).

Total investment spend in the first nine months of the year was €3.0bn and, with a number of transactions in the pipeline including the sale of Green REIT, the market is on track to exceed last year's record of €3.6bn by some margin (source: JLL). Dublin continues to be the principal location within Ireland for investment, accounting for 88% of volumes in the first nine months of the year, up from 84% in the same period last year (source: Knight Frank). Residential and office assets continue to dominate, accounting for 40% and 34%, of volumes respectively in the period (September 2018: 30% and 40%, respectively) (source: Knight Frank). These two sectors are expected to continue to represent the majority of investment volumes given demand for prime Dublin offices and residential assets, particularly from international investors (source: JLL). It is estimated that there was €3.0bn of demand for Dublin office investments and €4.0bn for residential investments as at 30 September 2019 (source: Knight Frank) though it remains to be seen whether this demand will be impacted by the recent tax changes announced as part of Budget 2020.

Top 10 office investment transactions (nine months to September 2019)

Building

Price

Price (psf)

Buyer

Buyer nationality

5 Hanover Quay

€197.0m

€1,233

Union Investment

Germany

Nova Atria

€165.0m

€465

Mapletree Investments

Singapore

Charlemont Exchange

€144.0m

€1,171

Vestas Investment Management

South Korea

Citywest Portfolio

€105.0m

n/a

Henley Bartra

UK & Ireland

The One Building

€49.5m

€1,100

BNP REIM

France

77 Sir John Rogerson's Quay

€35.5m

€1,040

Patrizia

Germany

51-54 Pearse Street/Magennis Place

€27.2m

€635

IPUT

Ireland

The Lennox Building

€27.0m

€806

Swiss Life

Switzerland

Ballast House

€26.9m

€951

Union Investment

Germany

23 Shelbourne Road

€25.3m

€976

U+I

UK

Top 10 total

€802.4m

 

 

 

Source: Knight Frank

Office occupational market

With large occupiers continuing to be active, 2019 is on track to be another strong year in the office letting market following two consecutive years of record take-up: 2018 saw 3.9m sq. ft. of leasing transactions and 2017 had 3.6m sq. ft. of transactions. For the first nine months of 2019 take-up stood at 2.1m sq. ft., which compares to 2.2m sq. ft. at the same point last year (source: Knight Frank), and there are 1m-1.6m sq. ft. of letting deals in the pipeline (source: Knight Frank, CBRE) which, if all converted in Q4 2019, would bring the total lettings in 2019 above 3m sq. ft. for the third year in a row. However, we have seen some evidence of smaller occupiers deferring leasing decisions given the recent geopolitical uncertainty and the statistics reflect this: in the first nine months of 2019 take-up of space in the sub-20k sq. ft. market was 0.6m sq. ft. compared to the five-year average for first nine months of each year of 0.9m sq. ft. (source: Knight Frank). The city centre continues to account for the majority of take-up, representing 52% of lettings by area in the first nine months, down from 66% in the same period in 2018 (source: Knight Frank). Net take-up was 64% of the headline figure in the period (September 2018: 75%), suggesting underlying occupier growth remains robust (source: Knight Frank).

Top 10 Dublin office lettings (nine months to September 2019)

Tenant

Industry

Building

Area (sq. ft.)

% of total take-up

Salesforce

TMT

Spencer Place, D1

430k

21%

Central Bank

State

4 & 5 Dublin Landings, D1

201k

10%

OPW

State

The Distillers Building, D8

182k

9%

Facebook

TMT

Nova Atria, Sandyford

174k

9%

Docusign

TMT

5 Hanover Quay, D2

99k

5%

Paddy Power

Other

Belfield Office Park, Co. Dublin

90k

4%

Elavon

TMT

Cherrywood Business Park, D18

68k

3%

VHI

Insurance

Hampstead Building, Carrickmines, D18

58k

3%

OPW

State

Bishops Square, D2

47k

2%

Genesis Aviation

Finance

Block I, Central Park, D18

25k

1%

Top 10 total

 

 

1,374k

66%

Source: Knight Frank

The technology, media and telecommunications ("TMT") sector remains the biggest source of demand, accounting for 44% of take-up in the first nine months of the year, up from 39% in the same period last year, followed by Irish state bodies at 24% (September 2018: 11%). Co-working and serviced office providers comprised 4% of take-up in the first nine months of 2019, down from 14% in the same period last year (source: Knight Frank). Overall, co-working and serviced office providers account for approximately 3.4% of the city centre stock (excl. period properties), up from 2.9% at March 2019 (source: Knight Frank). This compares to London at 6.0%, New York at 3.7% and Paris at 3.0% (source: Hibernia/Knight Frank). WeWork is by far the largest serviced office provider in Dublin at present with c. 500k sq. ft. of accommodation, more than twice that of its nearest competitor, which has 230k sq. ft. of accommodation.

The overall Dublin office vacancy rate at September 2019 was 6.8%, up from 5.4% at March 2019 (September 2018: 6.7%). The Grade A vacancy rate in the city centre where all of Hibernia's office portfolio is located was 6.0% at September 2019, up from 4.5% at March 2019 (September 2018: 5.3%) as a result of a large lease surrender and following some leased space coming back to the market for sub-lets (source: Knight Frank). Prime city centre rents are stable at above €60psf (source: JLL, Knight Frank, CBRE). Looking ahead, active demand remains strong at 4.1m sq. ft. at the end of September 2019, in line with March 2019 at 4.2m sq. ft. but down from 5.3m sq. ft. in September 2018 (source: Cushman & Wakefield).

Office development pipeline           

The table below sets out our expectations for upcoming supply across Dublin's city centre and for the whole of Dublin by year. We expect a total of 8.4m sq. ft. of gross new space between 2019 and 2022, of which 62% will be in the CBD.

Year

City centre supply

All Dublin supply

2019f

0.8m sq. ft. (72% pre-let)

1.5m sq. ft. (57% pre-let)

2020f

1.7m sq. ft. (42% pre-let)

2.3m sq. ft. (35% pre-let)

2021f

1.1m sq. ft. (22% pre-let)

2.1m sq. ft. (40% pre-let)

2022f

1.6m sq. ft. (5% pre-let)

2.5m sq. ft. (3% pre-let)

Total expected 2019-22

5.2m sq. ft.

8.4m sq. ft.

Source: Knight Frank/Hibernia

The pre- and mid-letting market continues to be active, with 38% of office stock under construction in Dublin (37% in the city centre) having been let or reserved as at November 2019 (source: Knight Frank/Hibernia).

Residential sector

Housing delivery is increasing, with 9,185 new homes delivered nationally in the first half of 2019 according to the CSO (versus 7,867 in H1 2018) and 33% of these delivered in the Dublin area (38% in H1 2018). When combined with the commuter counties around Dublin, the Greater Dublin Area ("GDA") accounted for 55% of completions in H1 2019 (56% in H1 2018). According to Goodbody's BER Housebuilding Tracker, housing completions grew strongly in Q3 2019 to 6,200 units, up 34% year-on-year. This would imply total completions to September 2019 of approximately 15,400 units and would be on track to modestly exceed Goodbody's forecast for the full year of 21,000 units but still well below the estimated annual requirement of approximately 35,000 - 40,000 units in order to meet demand (source: Goodbody). House price inflation has moderated somewhat, standing at 2% annually at August 2019 on a national basis and -0.3% annually in Dublin.

Despite Ireland 2040's aspirations for compact, urban growth there has been a surge in housebuilding in the commuter belt (up 57% year-on-year) while completions in Dublin grew by just 9% year-on-year in Q3 2019 (source: Goodbody). One of the reasons for this is that the delivery of apartments in Dublin, particularly at affordable levels, remains challenging. Apartment delivery increased by 78% year-on-year in Q3 2019 to 1,100 units and 35% of all units completed in Dublin in H1 2019 were apartments, up from 23% in H1 2018 (source: CSO). However, as Goodbody notes, "given the costs of apartment delivery, viability appears only to be achieved in the higher-priced markets of Dublin, resulting in a sprawl of lower density housing outside the capital". Overall, there remains 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). Notwithstanding these challenges, the fundamentals for housing remain strong with growing disposable incomes and net inward migration supportive of ongoing demand (source: Goodbody). Mortgage lending also continues to grow, and new lending is expected to increase 13% year-on-year in 2019. However, affordability issues remain to the fore due to the Central Bank's macroprudential rules which limit mortgages to 3.5x income.

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 research earlier this year suggests that as much as €6.3bn is now targeting the sector in Ireland, up from €5.3bn a year earlier, and Knight Frank estimates that €4.0bn is targeting Dublin. While not impacted by the increase in stamp duty, unlike commercial property, it remains to be seen if this demand is impacted by the wider tax changes announced in Budget 2020.

 

Business review

Disposals and acquisitions

It has been a quieter period of investment activity for the Group with €17.6m invested in five smaller acquisitions,(€16.4m excluding transaction costs), many of which are adjacent to existing Hibernia assets and were "bolt-on" in nature, and no disposals made. Since period end, we have invested a further €1.4m in one acquisition (incl. transaction costs).

Disposals

·      None.

 

 

Acquisitions

·      Malahide Road Industrial Park, D17: the property, which was acquired in July 2019 for €7.8m, including transaction costs, comprises 66,000 sq. ft. of warehousing and 17,000 sq. ft. of ancillary office accommodation on a 3.8 acre site. The property is occupied by Bunzl Irish Merchants on a lease expiring in early 2020 and is generating rent of €0.4m per annum. In the longer term we believe it has potential for a mixed-use development (see further details in the developments and refurbishments section below).

·      Other: during the period €9.8m was spent on four small acquisitions, most of which provide potential synergies with properties already owned by Hibernia.

Acquisitions after period end

·      136 A&B Slaney Close, D11: contracts have been exchanged to acquire two industrial units for €1.4m (incl. transaction costs). These units adjoin 129 Slaney Road, a property already owned by Hibernia. This acquisition increases Hibernia's total contiguous land holding in Dublin Industrial Estate from 3.8 acres to 4.5 acres. In the longer term we believe this land has potential for a mixed-use development (see further details in the developments and refurbishments section below).

 

Portfolio overview

As at 30 September 2019 the property portfolio consisted of 34 investment properties valued at €1,424m (March 2019: 32 investment properties valued at €1,395m), which can be categorised as follows: 

 

Value as at

September 2019

(all assets)

% of portfolio

Equivalent yield1

Passing rent

€'m

Contracted rent

€'m

ERV

€'m

1. Dublin CBD offices

Traditional Core

€441m

31%

5.0%2

€23.3m

€23.3m

€24.1m

IFSC

€206m

14%

4.7%

€8.3m

€8.3m

€11.2m

South Docks

€540m3

38%

4.5%

€14.4m4

€22.8m

€27.5m

Total Dublin CBD offices

€1,187m

83%

4.7%2

€46.0m

€54.3m

€62.8m

2. Dublin CBD office development5

€22m

2%

-

-

-

€3.2m

3. Dublin residential6

€155m

11%

3.9%7

€6.1m10

€6.1m10

€7.3m11

4. Industrial/ land

€60m

4%

2.4%8

€1.5m

€1.6m

€1.5m

Total

€1,424m

100%

4.5%2,7,8,9

€53.5m10

€62.0m

€74.8m12

1.        Yields on unsmoothed values and excluding the adjustment for South Dock House and 1WML 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 to be occupied by Hibernia in 1WML

4.        HubSpot on rent free at Sep-19. Total rent €6.8m

5.        2 Cumberland Place

6.        Includes 1WML residential element (Hanover Mills)

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

8.        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

9.        Excludes. all CBD office developments

10.     Residential rent on a net basis

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

12.     Note: differences in summation of totals is due to rounding

 

 

The key statistics for the office element of our portfolio, which comprised 83% by value and 88% by contracted rent at 30 September 2019 (March 2019: 85% and 88%, respectively), are set out below: contracted rent from completed developments now comfortably 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 MTM2 at next lease event

Acquired in-place office portfolio

€25.9m (€46psf)

€26.7m (€47psf)

2.6yrs

3.7yrs

17%

-

83%

Completed office developments3

€28.4m (€54psf)

€28.6m (€54psf)

3.2yrs

9.8yrs

-

25%

75%

Whole in-place office portfolio

€54.3m (€50psf)

€55.4m (€51psf)

2.9yrs

6.9yrs

8%

13%

79%

Vacant in-place office

-

€7.4m (€50psf)

-

-

-

-

-

Committed office-unlet

-

€3.2m (€56psf)4

-

-

-

-

-

Whole in-place office portfolio (after vacancy)

-

€66.0m (€51psf)

-

-

-

-

-

1.        To earlier of review or expiry

2.        Mark-to-market

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

4.        2 Cumberland Place

 

Increasing portfolio income and extending unexpired lease terms continue to be key priorities. Since 31 March 2019 we have added €4.4m to Group contracted rent through:

·      Four new leases/licence agreements and one variation to an existing lease adding €2.3m, with weighted average term certain for the new leases of c.5.3 years

·      Nine rent reviews concluded adding €2.7m

·      Two new acquisitions adding €0.5m to contracted rent

·      Lease expiries and breaks reducing contracted income by €1.1m

The in-place office portfolio vacancy rate was 12% by lettable area at 30 September 2019 (31 March 2019: 12%): for further details on the vacant space and the increase in contracted rent, please refer to the asset management section below. 

 

 

Portfolio performance

In the six months ended 30 September 2019 the portfolio value increased €9m or 0.6% on a like-for-like basis (i.e. excluding acquisitions, disposals and capital expenditure). Had the 1.5% increase in stamp duty on Irish commercial property transactions announced in the 2020 Budget on 8 October 2019 been effective from 30 September 2019, the Group's valuer estimates the negative impact on the portfolio value would have been €22m, meaning the portfolio value would have decreased €13m or -0.9% on a like-for like basis in the six month period (see further details in the Financial Review below). In the six months ended 31 September 2018 the portfolio value increased by €21.2m or 3.9% on a like-for-like basis.

 

Value at March 2019

(all assets)

Capex

Acquisitions 1

Disposals

Revaluation

Value at September 2019

(all assets)

Value at September 2019

(pro forma stamp duty)

L-f-L change

1. Dublin CBD offices

 

Traditional core

€444m

€1m

€1m

-

(€5m)

€441m

€430m

(€5m)

(1.2%)

IFSC

€207m

-

-

-

-

€206m

€203m

-

-

South Docks

€522m2

€4m

€7m

(€5m)3

€11m

€540m3

€533m3

€12m3

2.3%3

Total Dublin CBD offices

€1,173m

€5m

€8m

(€5m)

€6m

€1,187m3

€1,166m3

€7m3

0.6%3

2. Dublin CBD office development

€16m

€5m

-

-

€1m

€22m

€21m

€1m

4.5%

3. Dublin residential

€153m

-

€1m

-

€1m

€155m

€155m

€1m

0.5%

4. Industrial/
land

€53m

-

€9m

-

(€2m)

€60m

€60m

-

0.1%

Total

€1,395m

€10m

€18m

(€5m)

€6m

€1,424m3

€1,402m3

€9m3

0.6%3

1.        Including acquisition costs

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

3.        During the period fit-out commenced on the space in 1WML of Hibernia's new head office from late 2019 and it is therefore recognised as owner occupied property in the financial statements. The space currently occupied by the Group in South Dock House has been leased to a tenant from Dec-19 (signed Sep-19). Upon Hibernia's head office relocating, this space (in SDH) will be transferred to investment property. These transfers are recognised at fair value on the date of transfer. For the purpose of the above table, the transfer is a deemed disposal and the subsequent transfer of SDH to investment property will be a deemed purchase for the year ending Mar-20. The "like-for-like" columns in the above table ignore the deemed disposal of the 1WML space since it was part of investment property at Mar-19.

 

The key individual valuation movements in the period were:

·      Observatory, South Docks: €4.2m/5% uplift driven by the new licence agreement with N3 at a rent ahead of the March 2019 estimated rental value ("ERV") and the settlement of an outstanding rent review in line with ERV

·      2WML, South Docks: €3.6m/6% uplift as a result of leasing the 1st floor (13,000 sq. ft.) to Udemy significantly ahead of ERV. The headline market rent across the entire building increased from €55.19psf to €56.58psf and the equivalent yield compressed by 15bps from 4.85% to 4.65% on the let space

·      1WML, South Docks: €2.4m/2% uplift as a result of the headline market rent on the office space increasing by €1psf to €57.06psf

·      Hardwicke & Montague House, D2: €1.8m/2% uplift as a result of the majority of the rent reviews being settled, all at or ahead of ERV, and the average headline market rent increasing marginally from €52.86psf to €53.86psf

·      The Forum, IFSC: -€1.9m/-4% movement as a result of higher expected capital expenditure on the property prior to leasing. The ERV and yield assumptions remain the same as March 2019

·      Marine House, D2: -€4.5m/-15% movement largely as a result of higher capital expenditure estimates for the development works as a result of design improvements, preparatory work for the Clanwilliam redevelopment and cost inflation, with no corresponding increase in value

 

 

 

Developments and refurbishments

No schemes were completed in the period and one scheme, 2 Cumberland Place, remained in progress. Capital expenditure on developments amounted to €9.3m (September 2018: €20.1m). The pipeline of future schemes was expanded with the acquisition of the property at Malahide Road and there was progress on planning at Clanwilliam Court.

Committed development schemes

At 2 Cumberland Place, D2, we have received planning permission for an extra floor, adding 6,500 sq. ft. of office space and a 2,000 sq. ft. terrace and taking the overall building to 56,000 sq. ft. of office accommodation. The construction work continues: the concrete cores are now in place and the steel frame is being erected. As a result of the additional floor, completion is now expected to occur in Q3 2020 (previously H1 2020) and capital expenditure is expected to be €35m (previously €30m).

Please see further details on the 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

56k office

€0m

€35m

€621psf2

€3.2m

€56.20psf

Q3 2020

 

1k retail/café

Total committed

 

56k office

€0m

€35m

€621psf2

€3.2m

€56.20psf

 

 

1k retail/café

1.        Per C&W valuation at 30 September 2019

2.        Office demise only

At 30 September 2019 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (103,000 sq. ft.) in 2WML and 2 Cumberland Place of €56.57psf and was assuming an average yield of 4.80% upon completion: based on these assumptions C&W expects a further €12m 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. €6m difference to the development profits, and a €2.50psf change in estimated rental value ("ERV") would result in a c. €5m difference. If current market conditions prevail, we would expect these yields to tighten once the buildings are completed and/or let.

Development pipeline        
The office pipeline remains broadly unchanged from March 2019, with the potential to deliver up to an estimated 538,000 sq. ft. of Grade A office space upon completion (a net increase over current areas of 260,000 sq. ft.), the majority of which would be in two clusters of office buildings at Clanwilliam Court/Marine House and Harcourt Square. We have received a provisional grant of planning for the 152,000 sq. ft. redevelopment scheme at Clanwilliam Court, though this is subject to appeal.

The quantity of land owned with potential for mixed-use development schemes in the long term increased to 151.3 acres (March 2019: 147.5 acres) with the acquisition of a 3.8 acre industrial site at Malahide Road. Re-zoning will be necessary in all cases and so the timing of any future developments is uncertain at present.

Office

Sector

Current area

Area post completion

Full purchase price1

Comments

(sq. ft.)

(sq. ft.)

Marine House

Office

41k

49k

€29m

·      Planning granted for 49k sq. ft. refurbishment / extension

·      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

€55m

·       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)

·      Provisional planning received for 152k sq. ft. redevelopment - subject to appeal

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

·      Planning granted 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

€179m

 

Mixed-use

 

 

 

 

 

Newlands (Gateway)

Logistics / land

143.7 acres

n/a

€48m2

·      Strategic transport location

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

129 Slaney Road

Logistics

62k on

3.8 acres

n/a

€5m

·      Strategic transport location

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

Malahide Road

Logistics

66k warehouse & 17k ancillary office on 3.8 acres

n/a

€8m

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

Total mixed-use

 

151.3 acres

n/a

€61m

 

1.        Including transaction costs and capex spent to date

2.        Initial consideration

 

Asset management

Net capital expenditure on maintenance items amounted to €0.3m in the period (September 2018: €0.1m). Contracted rent increased by 8% to €62.0m (March 2019: €57.6m) as a result of:

·      New lettings/licence agreements and variations to existing leases adding €2.3m;

·      Rent reviews concluded adding €2.7m;

·      Acquisitions adding €0.5m; and

·      Lease expiries and surrenders reducing contracted rent by €1.1m

At 30 September 2019 one office rent review was active, with a modest (<€0.5m) uplift in contracted rent expected, and the vacancy rate in the office portfolio was 12%, based on lettable area (March 2019: 12%).

Summary of letting activity in the period

Offices:

·      Three new lettings on 31,000 sq. ft. and one license agreement, generating a total of €2.2m per annum of incremental new rent. The weighted average periods to break and expiry for the new leases were 5.1 years and 9.0 years, respectively

·      Nine rent reviews concluded over 99,000 sq. ft., adding a further €2.7m of rent per annum: in aggregate the revised rents were approximately 98% above the previous contracted rents and 2% ahead of the ERV at the time of review

Retail:

·      One new letting of 2,000 sq. ft. at an initial rent of €0.1m per annum

Residential:

·      293 of the Group's 331 apartments are located in Dundrum and average rents achieved in new lettings in the period by the Group for two-bed apartments in Dundrum were €1,864 per month vs average two-bed passing rents of €1,854 per month

·      Letting activity and lease renewals at Dundrum generated incremental gross annual rent of <€0.1m in the period (new leases signed on 38 apartments and leases renewed on 42 apartments)

·      All let units are subject to the rental cap regulations

Key asset management highlights  

1SJRQ, South Docks

The lease to HubSpot of all 112,000 sq. ft. of office accommodation at an annual rent of €6.8m commenced in June 2019. We have let the Dockers pub to L'Estrange Group on a long lease at an initial rent of €0.1m per annum for the 2,000 sq. ft. demise. We remain in discussions with food and beverage operators regarding the remaining 6,000 sq. ft. of retail space in the building. 

2WML, South Docks

We have let one floor (13,000 sq. ft.) to Udemy, an online learning platform, on a five year lease with three years term certain. The lease commenced in September 2019 and the initial rent payable is €0.8m per annum, materially ahead of the estimated rental value for the space at March 2019, in part due to the shorter term. Discussions continue with potential occupiers for the remaining 47,000 sq. ft. of available office accommodation.

50 City Quay, South Docks

We are working on plans for the refurbishment of the 4,500 sq. ft. office building which has a prominent river-fronting position next to 1SJRQ.

Cannon Place, D4               

Following the completion of necessary remedial works the 16 units are being furnished for re-letting.

Central Quay, South Docks               

Substantially all 27,500 sq. ft. of vacant space in the building is under offer from potential occupiers.

The Forum, IFSC

All 47,000 sq. ft. of office accommodation and 50 car parking spaces were vacated by the former tenant in March 2019 (which had been paying a rent of €2.0m per annum). We are continuing discussions with interested parties as we consider options for the building.

Hardwicke House & Montague House, D2

Six of the seven rent reviews outstanding in the buildings at 31 March 2019 have now been settled. The reviews covered 58,000 sq. ft. and resulted in an aggregate €1.6m increase (+97%) in the passing rent to €3.3m per annum. One rent review over 23,500 sq. ft. remains outstanding.

Marine House, D2

Two rent reviews over 4,300 sq. ft. of ground floor office space were settled, increasing the passing rent by €0.1m per annum.

The Observatory, South Docks

Riot Games exercised a break option on part of its demise and vacated 8,000 sq. ft. in July 2019 as expected. This space has been taken by N3, an international sales and marketing firm, on a three year, managed office contract which commenced in October 2019. Under the terms of the agreement N3 has taken the space fully-fitted ("plug and play") and Hibernia expects to generate net income after costs of €0.6m per annum. One rent review over 36,000 sq. ft. was concluded in the period resulting in a €1.0m (99%) uplift in the passing rent on the demise.

South Dock House, South Docks

We have agreed to let all 9,500 sq. ft. to an Irish plc on a long lease which is expected to commence in late 2019. Currently part of the property is occupied by Guggenheim and part is the Hibernia head office. We have commenced fit-out of the ground floor suite in 1WML and our head office will relocate there in late 2019.

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 84% of the available co-working memberships contracted at 30 September 2019.

Other completed assets    
The remaining completed properties in the portfolio remain close to full occupancy.

Sustainability
As set out in our Sustainability Report published in June 2019 (see www.hiberniareit.com/sustainability for more details), we are making good progress in improving our sustainability performance. Further evidence for this has come from the awards we have received in the six months to September 2019: as well as receiving an EPRA Gold award for the quality of our sustainability performance disclosures for a second successive year, we received three stars in the Global Real Estate Sustainability Benchmark ("GRESB") 2019 Assessment, improving our score by 17 percentage points over prior year. To ensure we continue to improve in all aspects of sustainability we have recruited a full-time Sustainability Manager who will join us in January 2020.

Financial review

As at

 

30 September 2019

31 March 2019

Movement

IFRS NAVPS

 

175.9c

174.7c

+0.7%

EPRA NAVPS1

 

175.7c

173.3c

+1.4%

Net debt1

 

€221.5m

 €217.1m

 +2.0%

Group LTV1

 

15.6%

15.6%

-

Financial period ended

 

30 September 2019

30 September 2018

Movement

Profit before tax for the period

 

 €25.5m

€64.0m

-60.1%

EPRA earnings1

 

 €19.3m

€12.8m

+50.1%

IFRS EPS

 

3.7c

9.2c

-59.8%

Diluted IFRS EPS

 

3.7c

9.2c

-59.8%

EPRA EPS 1

 

2.8c

1.8c

+55.6%

Interim DPS1

 

1.75c

1.5c

 +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 2.4 cent from 31 March 2019, were:

·      0.9 cent per share from the revaluation of the property portfolio, including 0.1 cent per share in relation to development properties

·      2.8 cent per share from EPRA earnings in the period

·      Other items, primarily the share buy-back, increased NAV by 0.7 cent

·      Payment of the FY19 final dividend, which reduced NAV by 2.0 cent per share

EPRA earnings were €19.3m, up 50.1% compared to the same period in the prior year as a result of:

·      A €2.0m increase in net rental income (+7.3%) to €28.6m (September 2018: €26.6m). This was principally due to the commencement of the office lease in 1SRJQ in June 2019 and the successful completion of a number of rent reviews and came in spite of the sales of New Century House and 77 Sir John Rogerson's Quay in the prior year and the cessation of the office lease in the Forum in March 2019

·      A €4.7m reduction in operating expenses (-44.9%) to €5.8m (September 2018: €10.4m): the reduction over the same period in prior year was mainly as a result to the expiry of the Investment Management Agreement in November 2018. The Group's new remuneration scheme commenced from the same date 

Profit before tax was €25.5m, a reduction of 60.1% over the same period last year, mainly because of higher revaluation gains in the financial period last year. The prior period saw significant yield compression within the residential sector and 1SJRQ benefitted from a change in valuation approach as it neared practical completion.

Funding position

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

The table below summarises our debt funding: the weighted average maturity of the Group's debt at 30 September 2019 was 4.8 years (March 2019: 5.4 years). We refinanced the Group's facilities in December 2018, moving to an unsecured structure, extending the weighted average maturity date and introducing non-bank funding for the first time in the form of private placement notes. The Group's overall interest costs under the new funding arrangements remained broadly unchanged due to a reduction in the undrawn commitment fee payable on the new revolving credit facility ("RCF").

 

 

 

Instrument

Quantum

Maturity date

Interest cost

Security

Revolving credit facility (five year)

€320m

December 2023

2.0% over EURIBOR on drawn funds

0.8% comm't fee (fixed) on undrawn funds

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

As at 30 September 2019, net debt was €221.5m (March 2019: €217.1m), equating to a loan to value ratio ("LTV") of 15.6% (March 2019: 15.6%). The key capital items impacting net debt in the period were total capital expenditure of €10.7m, the share buyback of €19.0m and acquisition expenditure of €17.6m which were partially offset by the receipt of €35.3m from the sale of 77SJRQ, which was contracted to be sold in FY '19.

Cash and undrawn facilities as at 30 September 2019 totalled €173.5m or €133.3m net of committed expenditure (March 2018: €178m and €143m, respectively). Assuming full investment of the available facilities in property, the LTV, based on property values at 30 September 2019, would be c. 25%. 

Interest rate hedging           

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

As at 30 September 2019 the Group had €75m of fixed coupon private placement notes and the interest rate risk on the RCF drawings of €166.6m was mitigated 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 was "over-hedged" on its interest rate exposure at 30 September 2019, this did not give rise to any additional financial risk to the Group and ceased on 11 November 2019 when the cap and swaption over €100m of notional debt expired. Had these instruments expired on 30 September 2019, 75% of the interest rate risk on the RCF drawings would have been hedged at that date and 83% of the Group's interest rate risk on its debt would have been fixed or hedged.

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.

Consistent with its policy that the interim dividend will represent 30-50% of the total ordinary dividends paid in respect of the prior financial year, the Board has declared an interim dividend of 1.75 cent per share (2018: 1.5 cent), an uplift of 16.7%. This represents 63% of the EPRA earnings per share for the period and 50% of the ordinary dividends per share paid in respect of the financial year ended 31 March 2019.

The interim dividend will be paid on 23 January 2020 to shareholders on the register at 3 January 2020. 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 Group'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

In April 2019 we announced the sale of 77SJRQ and our intention to return the net proceeds of €35m to shareholders to maintain the Group's progress towards the lower end of our stated 20-30% target, starting with an on-market share buyback programme of €25m which commenced the same month. As at 30 September 2019 13.3m shares had been repurchased and cancelled under this buyback programme for aggregate consideration of €19.0m (an average purchase price of €1.43 per share).  The €25m buyback programme completed on 11 November 2019, at which point 17.6m shares had been repurchased and cancelled at an average price of €1.42 per share.

In our preliminary results in May 2019 we announced our intention to undertake a capital reorganisation to enhance our flexibility for future capital management through converting a substantial part of our share premium account, which had a balance of €624.5m at 31 March 2019, into distributable reserves. This was approved by shareholders at the Annual General Meeting in July 2019 and the final court hearing to approve the capital reorganisation has been deferred until January 2020 by which time there is expected to be greater clarity on the tax changes detailed below.

Tax changes announced in Budget in October 2019

In the 2020 Budget (and the subsequent Finance Bill) the Irish Government announced a number of changes to the taxation of Irish property which can be categorised into those that directly impact the Group (whether immediately or potentially at some point in future) and those that do not. We summarise these changes below and estimate the impact for the Group where possible and/or appropriate. At present the Finance Bill is still subject to review and possible amendment: the final Finance Act is expected to be signed in December 2019.

Main tax changes directly impacting the Group

Overview

Type of change

Effective from

Impact for Hibernia

Stamp duty increased from 6% to 7.5% on all commercial property transactions in Ireland

Market change

9 October 2019 (unless a binding contract was in place before this date and it completes by 31 December 2019)

·  Cushman & Wakefield, the Group's valuer, estimates that this change would have reduced the value of the Group's portfolio at 30 September 2019 by 1.6% (€22m) had it been effective at that date

·  This is equates to a proforma 1.8% (3.3c) reduction in the Group's NAV per share at 30 September 2019

Increase in the rate of dividend withholding tax ("DWT") from 20% to 25% for all dividends paid by Irish companies

Market change

1 January 2020

·  The change affects shareholders directly

·  The impact will vary depending on the individual circumstances of each shareholder and whether relief is available under a tax treaty

Where an entity ceases to be a REIT, there will no longer be a deemed disposal and reacquisition of the assets at market value, unless the REIT has been in existence for 15 years or more.

REIT change

9 October 2019

·  No immediate change for the Group

·  If Hibernia ceased to be a REIT before the expiry of the 15 year period (i.e. before December 2028), this means the original tax basis in the assets would apply to subsequent disposals, not the market value at the date of cessation.

·  This could create latent tax for any bidder and reduce the price it would be prepared to pay to acquire the Group

85% of any proceeds a REIT generates from the sale of a rental property which are not reinvested within a three year window (spanning one year before and two years afterwards) or distributed to shareholders within two years of sale (and thus subject to DWT) will be taxed at 25% (an effective rate of 21.25% on the proceeds)

REIT change

9 October 2019

·  No immediate impact

·  Longer term impact uncertain until full terms of this change are clear

Tax changes not directly impacting the Group

Irish Real Estate Investment Funds ("IREFs"): anti-avoidance rules have been introduced for IREFs. Broadly these seek to counteract perceived aggressive tax planning by some IREFs by disincentivising the use of high levels of debt and excessive costs as a means of reducing profits liable to IREF tax. While the changes do not directly impact the Group, with almost €17bn of property held within IREF structures at the end of 2017 (source: Central Bank of Ireland) any changes which negatively impact IREFs may indirectly affect the wider property market.

Schemes of arrangement: stamp duty on corporate acquisitions undertaken by a scheme of arrangement increased to 1% (previously 0%).

Selected portfolio information

1.     Summary EPRA measures

EPRA performance measure

Unit

Six months ended

30 September 2019

Six months ended

30 September 2018

EPRA earnings

€'000

19,284

12,849

EPRA EPS

cent

 2.8

 1.8

Diluted EPRA EPS

cent

 2.8

 1.8

EPRA cost ratio - including direct vacancy costs

%

23.3%

42.5%

EPRA cost ratio - excluding direct vacancy costs

%

22.1%

41.1%

EPRA performance measure

Unit

 As at 30 September 2019

 As at 31 March 2019

EPRA net initial yield ("NIY")

%

3.6%

3.6%

EPRA "topped-up" NIY

%

4.2%

4.1%

EPRA net asset value ("EPRA NAV")

€'000

1,212,516

1,219,374

EPRA NAV per share

cent

175.7

173.3

EPRA triple net assets ("EPRA NNNAV")

€'000

1,203,540

1,218,539

EPRA NNNAV per share

cent

174.4

173.2

Like-for-like rental growth

%

9.1%

7.6%

EPRA vacancy rate

%

10.8%

10.7%

 

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

19%

     TMT

 

2

 The Commissioners of Public Works

6.0

11%

    Government Agency

 

3

 Twitter International Company

5.1

9%

TMT

4

 Autodesk Ireland Operations

2.8

5%

TMT

5

 Informatica Ireland EMEA

2.1

4%

TMT

6

 Riot Games

2.0

4%

      TMT

 

7

 Electricity Supply Board

1.9

4%

Government Agency

8

 Travelport Digital Limited

1.8

3%

      TMT

 

9

 BNY Mellon

1.6

3%

Banking and capital markets

10

 ComReg

1.6

3%

        Government Agency

 

 

Top 10 total

35.4

65%

 

 

 

Rest of portfolio

18.9

35%

 

 

 

Total contracted "in-place" office rent

54.3

100%

 

 

 

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

Sector

€ 'm

%

Technology, media & telecoms

28.8

53%

Government

10.3

19%

Banking & capital markets

7.1

13%

Professional services

4.2

8%

Insurance & reinsurance

1.6

3%

Other

1.2

2%

Serviced offices

1.1

2%

Total

54.3

100%

 

4.     In-place office contracted rent and WAULT progression

 

Sep-18

Movement
to Mar-19

Mar-19

Movement
to Sep-19

Sep-19

All office contracted rent1,3

€54.0m

-7%

€50.4m

+8%

€54.3m

In-place office contracted rent1,3

€47.3m

+7%

€50.4m

+8%

€54.3m

In-place office WAULT2

7.1yrs

+6%

7.5yrs

-8%

6.9yrs

In-place office vacancy3

3%

+9pp

12%

-

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.)

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

Market risks: under-performance of Dublin property market / weakening economy / adverse Brexit outcome

Investment risks: mis-timed investment or sale / inappropriate concentration on assets, locations, tenants or tenant sectors

Development risks: poor or mistimed execution of development projects / contractor default / adverse outcome at Newlands

Asset management risks: poor asset management / failure to react to evolving tenant needs

Finance risks: inappropriate capital structure or lack of available funding

People risks: Loss of key staff and / or motivation

Regulatory, tax and political risks: adverse changes or failure to comply with legislation including the REIT regime

Business interruption risks: adverse external event

 

Directors' Responsibilities Statement

·      Regulation 8(2) of the Transparency Directive (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the period from 1 April 2019 to 30 September 2019 and their impact on the half yearly financial report, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      Regulation 8(3) of the Transparency Directive (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place during the period from 1 April 2019 to 30 September 2019 and that have materially affected the financial position or performance during the period.

 

Signed on behalf of the Board

 

Kevin Nowlan                                                                                                       Thomas Edwards-Moss

Chief Executive Officer                                                                                       Chief Financial Officer

11 November 2019
 

INDEPENDENT REVIEW REPORT TO HIBERNIA REIT PLC

DIRECTORS' RESPONSIBILITIES

OUR RESPONSIBILITY

SCOPE OF REVIEW

CONCLUSION

 

 

 

 

 

Christian MacManus

For and on behalf of Deloitte Ireland LLP

Chartered Accountants and Statutory Audit Firm

Deloitte & Touche House, Earlsfort Terrace, Dublin 2

 

Date: 11 November 2019  

 

 

Condensed consolidated income statement

For the six months ended 30 September 2019

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Revenue

5

33,717

30,656

61,387

Rental income

5

29,749

28,134

56,027

Property operating expenses

5

(1,171)

(1,502)

(2,718)

Net rental and related income

5

28,578

26,632

53,309

Gains and losses on investment property

7

6,288

51,131

98,105

Other gains and (losses)

8

(28)

34

140

 

 

34,838

77,797

151,554

Operating expenses

 

 

 

 

Administration expenses

9

(5,753)

(7,603)

(13,890)

IMA performance-related payments

 


-

(2,841)

(5,401)

Total operating expenses

 

(5,753)

(10,444)

(19,291)

Operating profit

 

29,085

67,353

132,263

Finance income

 

3

17

5

Finance expense

 11

(3,589)

(3,407)

(8,226)

Net finance expense

 

(3,586)

(3,390)

(8,221)

Profit before income tax

 

25,499

63,963

124,042

Income tax

 

26

(3)

(583)

Profit for the period

 

25,525

63,960

123,459

 

 

 

 

 

EPRA earnings for the period

13

19,284

12,849

27,472

Earnings per share

 

 

 

 

Basic earnings per share (cent)

13

 3.7

 9.2

 17.8

Diluted earnings per share (cent)

13

 3.7

 9.2

 17.6

EPRA earnings per share (cent)

13

 2.8

 1.8

 4.0

Diluted EPRA earnings per share (cent)

13

 2.8

 1.8

 3.9

 

Condensed consolidated statement of comprehensive income

For the six months ended 30 September 2019

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Profit for the period

 

25,525

63,960

123,459

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

16

627

100

723

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

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

22.b

(59)

(48)

41

Total other comprehensive income

 

568

52

764

Total comprehensive income for the period attributable to owners of the Company

 

26,093

64,012

124,223

 

 

Condensed consolidated statement of financial position

As at 30 September 2019

 

 

Notes

30 September 2019

unaudited

€'000

31 March 2019

audited

€'000

Assets

 

 

 

Non-current assets

 

 

 

Investment property

15

1,423,737

1,395,418

Property, plant and equipment

16

12,524

5,902

Other assets

17

534

-

Other financial assets

19

11

194

Trade and other receivables

20

9,275

7,928

Total non-current assets

 

1,446,081

1,409,442

Current assets

 

 

 

Trade and other receivables

20

6,133

40,164

Cash and cash equivalents

18

25,327

22,372

 

 

31,460

62,536

Non-current assets classified as held for sale

17

-

534

Total current assets

 

31,460

63,070

Total assets

 

1,477,541

1,472,512

Equity and liabilities

 

 

 

Capital and reserves

 

 

 

Share capital

21

68,896

69,759

Share premium

21

630,276

624,483

Capital redemption reserve

21

1,327

-

Other reserves

22

3,337

9,157

Retained earnings

23

507,786

515,140

Total equity

 

1,211,622

1,218,539

Non-current liabilities

 

 

 

Financial liabilities

24.a

238,613

231,048

Deferred tax liabilities

25

547

547

Total non-current liabilities

 

239,160

231,595

Current liabilities

 

 

 

Financial liabilities

24.a

508

507

Trade and other payables

26

23,823

19,863

Contract liabilities

27

2,428

2,008

Total current liabilities

 

26,759

22,378

Total equity and liabilities

 

1,477,541

1,472,512

IFRS NAV per share (cent)

14

175.9

174.7

Diluted IFRS NAV per share (cent)

14

175.5

173.2

EPRA NAV per share (cent)

14

175.7

173.3

 

 

 

 

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2019 (unaudited)

 

 

Share capital

€'000

Share premium reserve

€'000

Capital redemption reserve

€'000

Property revaluation reserve

€'000

Cashflow hedge reserve

€'000

Share-based payment reserve

€'000

Retained earnings

€'000

Total

€'000

Balance at 1 April 2018

69,235

617,461

 -

1,166

(329)

8,783

415,414

1,111,730

Profit for the period

 -

 -

 -

 -

 -

 -

63,960

63,960

Other comprehensive income for the period

 -

 -

 -

100

(48)

 -

 -

52

 

69,235

617,461

 -

1,266

(377)

8,783

479,374

1,175,742

Issue of share capital

524

7,022

 

 

 

(7,546)

(14)

(14)

Dividends paid

 -

 -

 -

 -

 -

 -

(13,254)

(13,254)

Share-based payments provided

 -

 -

 -

 -

 -

3,792

 -

3,792

Balance at 30 September 2018

69,759

624,483

 -

1,266

(377)

5,029

466,106

1,166,266

Profit for the period

 -

 -

 -

 -

 -

 -

59,499

59,499

Other comprehensive income for the period

 -

 -

 -

623

89

 -

 -

712

 

69,759

624,483

 -

1,889

(288)

5,029

525,605

1,226,477

Issue of share capital

 -

 -

 -

 -

 -

 -

 -

 -

Dividends paid

 -

 -

 -

 -

 -

 -

(10,465)

(10,465)

Share-based payments provided

 -

 -

 -

 -

 -

2,527

 -

2,527

Balance at 31 March 2019

69,759

624,483

 -

1,889

(288)

7,556

515,140

1,218,539

Profit for the period

 -

 -

 -

 -

 -

 -

25,525

25,525

Other comprehensive income for the period

 -

 -

 -

627

(59)

 -

 -

568

 

69,759

624,483

 -

2,516

(347)

7,556

540,665

1,244,632

Issue of share capital

464

5,793

 -

 -

 -

(6,257)

(15)

(15)

Capital redeemed

(1,327)

 -

1,327

 -

 -

 -

(18,979)

(18,979)

Dividends paid

 -

 -

 -

 -

 -

 -

(13,885)

(13,885)

Share-based payments

 -

 -

 -

 -

 -

(131)

-

(131)

Balance at 30 September 2019

68,896

630,276

1,327

2,516

(347)

1,168

507,786

1,211,622

 

 

 

 

 

Condensed consolidated statement of cash flows

For the six months ended 30 September 2019

 

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Cash flows from operating activities

 

 

 

 

Profit for the period

 

25,525

63,960

123,459

Adjusted for:

 

 

 

 

Gain on sales of investment property

 


-

(2,397)

(2,578)

Other gains and losses

 

12

 -

(140)

Cash-settled share-based payments

10

(319)

 -

(339)

Finance expense

 

3,586

3,390

8,221

Non-cash movements

28.a

(5,931)

(42,567)

(85,359)

Operating cash flow before movements in working capital

 

22,873

22,386

43,264

(Increase)/decrease in trade and other receivables

 

(2,017)

1,225

(961)

(Decrease)/increase in trade and other payables

 

4,611

(928)

(447)

Increase in contract liabilities

 

420

540

263

Net cash inflow from operating activities

 

25,887

23,223

42,119

Cash flows from investing activities

 

 

 

 

Cash expended on investment property

28.b

(28,663)

(32,669)

(86,847)

Cash received from sales of investment property

28.c

34,639

64,962

64,016

Purchase of fixed assets

28.d

(130)

(49)

(52)

Cash received from loans repaid

 


-

 -

170

Tax

 

69

 -

 -

Income on other assets

 


-

8

122

Finance income

 

3

17

5

Finance expense

 

(3,203)

(2,929)

(9,546)

Net cash flow inflow/(outflow) by investing activities

 

2,715

29,340

(32,132)

Cash flow from financing activities

 

 

 

 

Dividends paid

12

(13,885)

(13,254)

(23,719)

Share buy-back

21

(18,979)

 -

 -

Borrowings drawn

24.a

37,200

22,500

340,412

Borrowings repaid

24.a

(29,968)

(30,000)

(326,372)

Derivatives premium paid

 


-

 -

(443)

Share issue costs

 

(15)

(14)

(14)

Net cash (outflow) from financing activities

 

(25,647)

(20,768)

(10,136)

Net (decrease)/increase in cash and cash equivalents

 

2,955

31,795

(149)

Cash and cash equivalents at start of financial period

 

22,372

22,521

22,521

(Decrease)/increase in cash and cash equivalents

 

2,955

31,795

(149)

Net cash and cash equivalents at end of financial period

 18

25,327

54,316

22,372

 

 

Notes to the condensed consolidated financial statements

Section 1 - General

The accounting conventions and accounting policies employed in the preparation of these condensed consolidated financial statements are consistent with those employed in the preparation of the most recent annual consolidated financial statements in respect of the year ended 31 March 2019 as described in the Annual Report and referenced in this document as appropriate except as noted below.

The Group adopted IFRS 16 for the first time in these condensed consolidated financial statements. There was no material impact on these interim results or on the financial position as at 1 April 2019. These condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should therefore be read in conjunction with the Group's Annual Report in respect of the year ended 31 March 2019.

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 and the premium listing segment of the Official List of the UK Listing Authority and are traded on the regulated markets for listed securities of Euronext Dublin and the London Stock Exchange plc.

2.    Basis of preparation

a.      Statement of compliance and basis of preparation

The annual financial statements of Hibernia REIT plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, which comprise standards and interpretations approved by the International Accounting Standards Board (IASB). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. These condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the EU.

The interim figures for the six months ended 30 September 2019 are unaudited but have been reviewed by the independent auditor, Deloitte Ireland LLP , whose report is set out on page 18 of this report. The summary financial statements for the year ended 31 March 2019 that are presented in the condensed consolidated financial statements represent an abbreviated version of the full financial statements for that year on which the independent auditor, Deloitte Ireland LLP , issued an unqualified audit report and are not annexed to these financial statements. The half yearly financial statements herein are non-statutory financial statements for the purposes of the Companies Act 2014.

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

The consolidated financial statements of the Group for the year ended 31 March 2019 ("the Annual Report 2019") are available upon request from the Company Secretary or from www.hiberniareit.com. The financial statements for the financial year ended 31 March 2019 have been filed in the Companies Registration Office.

These condensed consolidated financial statements were approved for issue by the Board of Directors on 11 November 2019.

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 these condensed consolidated financial statements. 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 EPRA NAV are presented within the condensed 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 condensed 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 condensed consolidated financial statements incorporate the condensed 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. All intragroup assets and liabilities, equity, income, expenses and cashflows relating to transactions between members of the Group are eliminated in full on consolidation.

e.      Assessment of going concern

The condensed 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 these condensed consolidated financial statements and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 30 September 2019 of €25.3m (31 March 2019: €22m), is generating positive operating cashflows and, as discussed in note 24.a, has in place debt facilities with average maturity of 4.8 years and an undrawn balance of €153m at 30 September 2019 (31 March 2019: €161m). 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 condensed 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 condensed 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 calculating 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. In valuing an investment property, the Group must judge the property's highest and best use, which may not necessarily be the current use. For example, it may be decided that older properties, nearing the end of their current lease arrangements, may be better used by either significant refurbishment or demolition and rebuilding. The valuation techniques applied to the properties depend on their use, and results may vary significantly, therefore the Group's judgement as to the appropriate valuation basis for these properties is considered by the Directors to be significant in preparing financial statements. Fair value for measurement and/or disclosure purposes in these condensed consolidated financial statements is determined on such a basis, except for share-based transactions that are within the scope of IFRS 2 (see note 10 for more details), leasing transactions that are within the scope of IFRS 16, and measurements that have some similarities to fair value but are not fair value such as value in use in IAS 36.

Valuation basis of investment property (note 15)

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

·      Harcourt Square, Marine House and Clanwilliam Court Blocks 1, 2 and 5  where, in accordance with IFRS 13:27, the valuations take into account the redevelopment potential upon expiry of the current leases which reflects the highest and best use. It is the Directors' intention to pursue the redevelopment of these properties when the existing leases have expired. These are valued on an investment basis until the end of the leases and on a residual basis thereafter.

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

·      Malahide Road Industrial Park, which is currently partly rented on short-term leases, has been valued on a basis that includes recognition of its potential as a development site.

Block 3 Wyckham Point and Hanover Mills: both properties are held for long-term property rental purposes 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 the building. As neither property is intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the valuer's valuation of either asset was deemed necessary.

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 30 September 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 15.

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

The Directors are satisfied that the valuation of the Group's investment property is appropriate for inclusion in the condensed consolidated financial statements. The fair value of these properties is based on the valuation provided by C&W. This valuation is based on future cashflows from rental income both for the current lease period and future estimated rental values.

In accordance with the Group's policy on 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 €7.3m (31 March 2019: €6.7m).

There were no other significant judgements or key estimates that might have a material impact on the condensed consolidated financial statements at 30 September 2019.

 

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

Changes in accounting standards

The following standards, amendments and interpretations endorsed by the EU were effective for the first time for the Group's current accounting period and had no material impact on the financial statements.

IFRS 16 Leases 

Effective for accounting periods starting on or after 1 January 2019. The main impact of this standard, which replaces IAS 17 and SIC-15, is the removal of the distinction between operating and financial leases for lessees. This will result in almost all leases being recognised on the balance sheet for lessees. As the Group does not hold any material operating leases as lessee, the impact of the standard is not material in the Group's financial statements. This standard has also no material impact on the Group's accounting for rental and related income as lessor.

Amendments and interpretations which became effective during the period but had no material impact on the Group's financial statements

IFRIC 23 Uncertainty over tax treatments

IFRS 9 Prepayment features with negative compensation

IAS 19 Plan amendment containment or settlement

IAS 28 Long term interests in associates or joint ventures

Annual improvements to IFRS standards 2015-2017 cycle

Standards, amendments, and interpretations in issue but not yet effective nor early adopted 

The Directors do not anticipate that these standards or amendments will have any material effect on the Group's financial statements.

IFRS 17 Insurance contracts

IFRS 10 and IAS 28 (amended) Sale or contribution of assets between an investor and its associate or joint venture

Amendments to References to the Conceptual Framework in IFRS Standards (amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32)

Amendment to IFRS 3 Definition of a business

Amendment to IAS 1 and IAS 8 Definition of material

 

Section 2 - Performance

This section includes notes relating to the performance of the Group for the period, including segmental reporting, earnings per share and net assets per share as well as specific elements of the condensed 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 valuer.

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 on pages 53 to 59) measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiry of a rent-free period or other lease incentives, respectively.

An overview of the reportable segments is set out below:

Group consolidated segment analysis

For the six months ended 30 September 2019 unaudited

 

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

 29,515

-

 3,547

 655

-

-

 33,717

Rental income

 25,547

-

 3,547

 655

-

-

 29,749

Property operating expenses

(580)

-

(583)

(8)

-

-

(1,171)

Net rental and related income

 24,967

-

 2,964

 647

-

-

 28,578

Gains and (losses) on investment property

 6,172

 943

 766

(1,593)

-

-

 6,288

Other gains and (losses)

-

-

-

-

-

(28)

(28)

Total income/(expense)

 31,139

 943

 3,730

(946)

 -

(28)

 34,838

Administration expenses

-

-

-

-

-

(5,611)

(5,611)

Depreciation

-

-

-

-

-

(142)

(142)

Total operating expenses

-

-

-

-

-

(5,753)

(5,753)

Operating profit/(loss)

 31,139

 943

 3,730

(946)

-

(5,781)

 29,085

Finance income

-

-

-

-

-

 3

 3

Finance expense

(1,157)

-

-

-

-

(2,432)

(3,589)

Profit/(loss) before income tax

 29,982

 943

 3,730

(946)

-

(8,210)

 25,499

Income tax

-

-

-

-

-

 26

 26

Profit/(loss) for the period

 29,982

 943

 3,730

(946)

-

(8,184)

 25,525

 Total segment assets

1,205,929

 21,899

 155,487

 60,349

 534

 33,343

 1,477,541

 Investment property

1,186,620

 21,899

 154,869

 60,349

-

-

 1,423,737

For the six months ended 30 September 2018 unaudited

 

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

 26,822

 -

 3,386

 448

 -

 -

 30,656

Rental income

 24,300

 -

 3,386

 448

 -

 -

 28,134

Property operating expenses

(801)

(5)

(669)

(27)

 -

 -

(1,502)

Net rental and related income

 23,499

(5)

 2,717

 421

 -

 -

 26,632

Gains and (losses) on investment property

 24,259

 18,432

 9,072

(632)

 -

 -

 51,131

Other gains and (losses)

 -

 -

 -

 -

 34

 -

 34

 Total income/(expense)

 47,758

 18,427

 11,789

(211)

 34

 -

 77,797

Administration expenses

 -

 -

 -

 -

 -

(2,841)

(2,841)

IMA performance-related payments

 -

 -

 -

 -

 -

(7,453)

(7,453)

Depreciation

 -

 -

 -

 -

 -

(150)

(150)

Total operating expenses

 -

 -

 -

 -

 -

(10,444)

(10,444)

Operating profit/(loss)

 47,758

 18,427

 11,789

(211)

 34

(10,444)

 67,353

Finance income

 -

 -

 -

 -

 -

 17

 17

Finance expense

(1,613)

 -

 -

 -

 -

(1,794)

(3,407)

Profit/(loss) before income tax

 46,145

 18,427

 11,789

(211)

 34

(12,221)

 63,963

Income tax

 -

 -

 -

 -

 -

(3)

(3)

Profit/(loss) for the period

 46,145

 18,427

 11,789

(211)

 34

(12,224)

 63,960

Total segment assets

 993,871

 173,200

 148,282

 25,591

 595

 59,582

 1,401,121

Investment property

 984,446

 173,200

 148,179

 24,100

 -

 -

 1,329,925

 

For the financial year ended 31 March 2019 audited

 

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/(expense)

 84,601

 48,020

 19,107

(314)

 -

 140

 151,554

Administration expenses

 -

 -

 -

 -

 -

(13,606)

(13,606)

IMA performance-related payments

 -

 -

 -

 -

 -

(5,401)

(5,401)

Depreciation

 -

 -

 -

 -

 -

(284)

(284)

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/(loss) before income tax

 81,740

 48,020

 19,107

(314)

 -

(24,511)

 124,042

Income tax

 -

 -

 -

(547)

 -

(36)

(583)

Profit/(loss) 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

c.          Geographic information

All of the Group's assets, revenue and costs are based in the Greater Dublin Area, 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 (including variable rents based on profit sharing arrangements) as at the period end. This is concentrated on office tenants as the next major segment, residential, consists mainly of small private tenants and therefore contains no major concentration of credit risk.

 

The Group's top 10 tenants as at 30 September 2019 are as follows, expressed as a percentage of contracted office rent:

As at 30 September 2019

Tenant

Business sector

Contracted rent (€m)

 %

HubSpot Ireland Limited

TMT

10.5

19.0

The Commissioners of Public Works ("OPW")

Government Agency

6.0

10.9

Twitter International Company

TMT

5.1

9.2

Autodesk Ireland Operations Limited

TMT

2.8

5.1

Informatica Ireland EMEA

TMT

2.1

3.8

Riot Games

TMT

2.0

3.6

Electricity Supply Board ("ESB")

Government Agency

1.9

3.4

Travelport Digital Limited

TMT

1.8

3.3

BNY Mellon Fund Services

Banking & Capital Markets

1.6

2.9

Commission for Communications Regulation ("ComReg")

Government Agency

1.6

2.9

Top 10 tenants

 

35.4

64.1

Remaining tenants

 

19.8

35.9

Whole office portfolio

 

55.2

100.0

 

As at 30 September 2018

 Tenant ​

Business Sector​

Contracted Rent

(€m)​

% ​

The Commissioners of Public Works ​("OPW")

Government Agency​​

6.0

12.7

Twitter International Company ​

Hubspot Ireland Limited1 ​

TMT​

TMT​

 5.1​

3.8​

10.8​

8.0​

Autodesk​ Ireland Operations Limited

TMT​

 2.8​

5.9​

Informatica Ireland EMEA ​

TMT​

 2.1​

4.4​

Depfa Bank plc

Banking and capital markets

 2.0

4.2​

Electricity Supply Board ​("ESB")

Government Agency​

 1.9​

4.0​

Travelport Digital Limited ​

TMT​

 1.8​

3.8

IWG plc

Serviced offices​

1.8​

3.8​

BNY Mellon Fund Services​

Banking & Capital Markets​

1.6​

3.4​

Top 10 tenants 

 

28.9

61.0

Remaining tenants ​

 ​

18.4

39.0

Whole office portfolio

 

47.3

100.0

1.  Excludes 1SJRQ lease agreed in November 2018

 

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

5.    Revenue and net rental and related income

Accounting policy

See note 5 of the Annual Report 2019.

Revenue can be analysed as follows:

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Gross rental income

27,954

28,563

56,242

Rental incentives

1,795

(429)

(215)

Rental income

29,749

28,134

56,027

Revenue from contracts with customers1

3,968

2,522

5,360

Total revenue

33,717

30,656

61,387

1. Revenue from contracts with customers is service charge income

 

Net rental and related income

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Total revenue

33,717

30,656

61,387

Cost of goods and services1

(3,929)

(2,481)

(5,482)

Property expenses

(1,210)

(1,543)

(2,596)

Net rental and related income

28,578

26,632

53,309

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 €0.4m (Sep 2018: €0.5m) relating to void costs on office properties, i.e. costs relating to office properties which were available to let but were not income-generating during the financial period.

Property operating expenses

 

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Service charge income

3,968

2,522

5,360

Service charge expenses

(3,929)

(2,481)

(5,482)

Property expenses

(1,210)

(1,543)

(2,596)

Property operating expenses

(1,171)

(1,502)

(2,718)

 

6.    Disaggregation of revenue and rental income

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

Six months ended 30 September 2019 unaudited

Lease contracts:

Assets sold
€'000

Current leases
€'000

One year or less

€'000

Between one and five years
€'000

Greater than five years
€'000

Total
€'000

Office assets


-

5,532

5,532

9,618

14,365

29,515

Office development assets


-

 -

 -

 -

 -

 -

Residential assets

-

3,547

3,547

 -

 -

3,547

Industrial/land assets

-

328

328

112

215

655

Total segmented revenue

-

9,407

9,407

9,730 

14,580

33,717

 

Six months ended 30 September 2018 unaudited

Lease contracts:

Assets sold
€'000

Current leases
€'000

One year or less

€'000

Between one and five years
€'000

Greater than five years
€'000

Total
€'000

Office assets

1,215

4,340

5,555 

8,080

13,187

26,822

Office development assets

 -

 -

-

 -

 -

 -

Residential assets

-

3,386

3,386

 -

 -

3,386

Industrial/land assets

-

448

448

 -

 -

448

Total segmented revenue

 1,215

8,174

 9,389

8,080

13,187

30,656

 

Financial year ended 31 March 2019 audited

Lease contracts:

Assets sold

€'000

Current leases

€'000

One year or less

€'000

Between one and five years

€'000

Greater than five years

€'000

Total

€'000

Office assets

2,926

 10,360

13,286

16,710

23,501

 53,497

Office development assets

 -

-

-

 -

-

-

Residential assets

 -

6,862

6,862

 -

-

6,862

Industrial/land assets

 -

-

-

698

330

1,028

Total segmented revenue

2,926 

17,222

20,148

 17,408

23,831

 61,387

 

Rental income by tenant industry sector

 

Six months ended

30 September 2019

 unaudited

Six months ended

30 September 2018

unaudited

Financial year ended

31 March 2019

audited

 

€'000

 %

€'000

 %

€'000

 %

Technology, media and telecommunications

12,250

 41.2

9,405

33.4

19,977

35.7

Government agency

5,157

 17.3

5,027

17.9

10,362

18.5

Banking and capital markets

4,103

 13.8

4,888

17.4

8,501

15.2

Residential

3,547

 11.9

3,383

12.0

6,862

12.2

Professional services

2,265

 7.6

2,420

8.6

5,276

9.4

Co-working

804

 2.7

1,584

5.6

2,230

4.0

Logistics

568

 1.9

448

1.6

1,028

1.8

Insurance and reinsurance

534

 1.8

706

2.5

1,246

2.2

Other

521

 1.8

273

1.0

545

1.0

Rental income

29,749

100.0

28,134

100.0

56,027

100.0

 

7.    Gains and losses on investment property

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Revaluation of investment property

6,288

48,734

95,527

Gains on sale of investment property


-

2,397

2,578

Gains and losses on investment property

6,288

51,131

98,105

There were no sales of investment property in the period. Sales of two properties in the financial year ended 31 March 2019 realised proceeds of €99m and a profit over book value of €2.6m after costs.

8.    Other gains and losses

Other gains and losses arose from amounts received or paid in relation to non-core assets and realised gains or losses on the resolution of loans measured at fair value.

9.    Administration expenses

Accounting policy

See note 9 of the Annual Report 2019. 

Operating profit for the period has been stated after charging:

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Non-Executive Directors' fees

248

217

447

Staff costs

2,928

2,044

4,516

Professional valuer's fees

144

135

394

Depository fees

165

164

299

"Top-up" internalisation expenses

 -

1,113

1,482

Prepaid remuneration expense

 -

2,222

2,679

Depreciation

142

150

284

Other administration expenses

2,126

1,558

3,789

Administration expenses

5,753

7,603

13,890

All fees paid to Non-Executive Directors are for services as Directors to the Company. Non-Executive Directors received no other benefits during the period. Frank Kenny received €140k in consulting fees in the financial year ended 31 March 2019 as well as payments in relation to his interest as a Vendor of the Investment Manager (note 32). These arrangements all ceased in the prior year.

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 benefited from the service. These payments were made in November 2015 as part of the internalisation of the Investment Manager and were made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. These amounts were amortised until the expiry of these arrangements on 26 November 2018.

Professional valuer's fees are paid to Cushman & Wakefield ("C&W"), in return for its 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.

Staff costs can be further analysed as follows:

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Wages and salaries (including cash bonuses)

2,350

1,970

4,953

Social insurance costs

208

181

430

Employee share-based payment expense

365

365

587

Pension costs - defined contribution plan

195

145

310

Total

3,118

2,661

6,280

 

 

 

 

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Administration expenses

2,928

2,044

4,516

Net property expenses

190

191

954

IMA performance related payments

-

426

810

Total

3,118

2,661

 6,280

 

10.  Share-based payments

Accounting policy

See note 11 of the Annual Report 2019. 

Movements in share-based payments during the period by share-based payment scheme

Summary of share-based payments outstanding as at 30 September 2019

 

Balance outstanding at start of period

Settled during financial period

Provided during period

Balance outstanding at end of period

 

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

a. Annual bonus

 23

 17

-

-

 117

 78

 140

 95

b. Long term incentive payments

-

-

-

-

 83

 65

 83

 65

c. Performance-related payments
    (IMA)

6,069

 4,495

(6,107)

(4,519)

 38

 24

-

-

c. Employee incentives - previous
 arrangements

 1,464

 1,087

(469)

(374)

(50)

(36)

 945

 677

Total

 7,556

 5,599

(6,576)

(4,893)

188

 131

 1,168

837

 

Summary of share-based payments outstanding as at 31 March 2019

 

Balance outstanding at start of period

Settled during financial period

Provided during period

Balance outstanding at end of period

 

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

a. Annual bonus

-

-

 -

 -

 23

 17

23

 17

b. Long term incentive payments

 -

 -

 -

 -

 -

 -

 -

 -

c. Performance-related payments (IMA)

 7,332

 5,079

(7,334)

(5,079)

6,071

4,495

6,069

 4,495

c. Employee incentives - previous arrangements

1,451

 1,104

(551)

(428)

564

411

 1,464

 1,087

Total

 8,783

6,183

(7,885)

(5,507)

6,658

 4,923

7,556

 5,599

 

2018 Remuneration Scheme

This scheme was introduced in the 2019 financial year and was described in full in the 2018 Annual Report and is available on our website.

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 in exceptional circumstances.

a. Annual Bonus

 

Six months ended 30 September 2019 unaudited

Financial year ended 31 March 2019 audited

 

€ '000

'000 Shares

€ '000

'000 Shares

 Opening balance at start of period

 23

 17

 -

 -

 Movements in amounts provided during the period

 

 

 

 

 2019 awards

 45

 29

 23

 17

 2020 awards

 72

 49

-

 -

 Net amount provided during the period

 117

 78

 23

 17

 Closing balance at end of period

140

 95

 23

 17

 

The share-based element of the Annual Bonus for the year ended 31 March 2019 was granted on a number of dates in June and July 2019. One third of the total Annual Bonus consists of the grants of options to acquire shares in the Company at nil cost subject to a three-year service condition. If the service condition is met, then employees can exercise their option at any date after the third anniversary of the financial year to which they relate. 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 shares granted at the closing share price on the date of grant. 215,796k share awards were made under this arrangement and approved by the Remuneration Committee on several dates in June and July 2019 giving rise to a total fair value at the grant dates of €313k. This is discounted by Management's estimate of expected departure rates and is provided for over the period from the commencement of the scheme until 31 March 2022.

b. Long-Term Incentive Plan ("LTIP")

The LTIP commenced during the period with the first grant on 31 July 2019. This award consists of nil cost options which vest in three years. Under the LTIP, recipients are granted a variable number of equity instruments depending on market and other conditions as illustrated below.

LTIP conditions

Weighting

Reference

Performance condition type

Service condition

 

SC

n/a

Relative Total Property Return

33%

TPR

Non-market

Total Accounting Return

33%

TAR

Non-market

Relative Total Shareholder Return

33%

TSR

Market

 

There is a two year restricted holding period post vesting, but this is not subject to measurement as all conditions terminate on vesting. The LTIPs are measured as follows:

Non market conditions: The fair value of the shares to be issued is determined using the grant date market price. The expected number of shares is calculated based on the expectations of the number of shares which may vest at the vesting date and amortised over the vesting period. At each accounting date, the calculation of the number of shares is revised according to current expectations or performance. The number of shares is discounted at Management's estimate of the expected employee departure rate.

Market condition: The expected performance of Hibernia REIT plc shares over the vesting period is calculated using a Monte Carlo simulation of 10,000 possible outcomes which are then averaged. This is used to amortise the fair value of an expected cost over the vesting period. The service condition Is ignored for this calculation but applied in accruing the amounts due. On vesting, any difference in amounts accrued versus actual is amended through reserves.

2019 LTIP

Number of awards granted : 1,853,381

Grant date: 31 July 2019

 

Total awards made at maximum vesting

Provided as at period end

 

'000 shares

'000 shares

LTIP dated 31 July 2019

 1,853

65

Total LTIP awards as at period end

 1,853

 65

One third of each award made is subject to a relative TSR measure against the constituents of the FTSE EPRA NAREIT Developed Europe Index. One third each is made against TPR and TAR measures. There were no provisions made for the TPR element as at 30 September 2019 as performance fell below the threshold. 32k shares were provided against the TAR element based on the performance for the period and 33k shares were provided against the TSR element based on the fair value calculated using a TSR pricing model taking account of peer group TSR, volatilities and correlators together with the following assumptions:

 

31 July 2019 LTIP

Risk free interest rate(%)

(0.80)

Expected volatility (%)

17.1

 

c. Pre 2018 remuneration arrangements (IMA and employees)

 

 

Six months ended 30 September 2019 unaudited

Financial year ended 31 March 2019 audited

 

€ '000

'000 Shares

€ '000

'000 Shares

Opening balance at start of period

 1,464

 1,087

 1,451

 1,104

Payment made during the period

 

 

 

 

Shares issued

(150)

(122)

(212)

(163)

 

 

 

 

 

Cash-settled share-based payments (taxes)

(163)

(132)

(223)

(177)

Cash-settled share-based payments

(156)

 (120)

(116)

(88)

Total cash paid

(319)

 

(339)

 

Total payments in the period

(469)

(374)

(551)

(428)

Movements in amounts provided during the period

 

 

 

 

Share-based performance grants recognised

 119

89

 988

 735

Cash bonus element

 -

 -

(405)

(303)

Other amendments

(169)

(125)

(19)

(21)

Net amount provided during the period

(50)

(36)

 564

 411

 Closing balance at end of period

 945

677

 1,464

 1,087

 

Investment Management Agreement ("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. These arrangements expired with the introduction of the 2018 Remuneration Scheme and no further awards will be due under this arrangement.

All amounts due to the Vendors have been settled during the period with the final issuance of 4.5m shares. There are 0.5m shares outstanding to employees at 30 September 2019 under the IMA agreement for which the final vesting date is 31 March 2021. These shares are forfeited by employees should they leave the Group prior to the vesting date unless subject to "good leaver" provisions. However shares forfeited are transferable to the Vendors on the basis that these shares have been deducted from performance fees that would otherwise have been due to the Vendors. Therefore there is no impact on fair value measurement from any possible departures relating to these shares.

Employee incentives - interim arrangements

This covered employees who were providing services that were not part of the original IMA. This arrangement expired with the introduction of the 2018 Remuneration Scheme and the final vesting date is 31 March 2021. A total of 0.2m shares are outstanding under this arrangement and these are forfeited should the employee leave the Group prior to the vesting date unless subject to "good leaver" provisions.

11.  Finance costs

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

Interest on revolving credit facility 

2,532

3,543

7,854

Interest on private placement notes

957

 -

358

Other finance costs

141

60

442

Gross finance costs

3,630

3,603

8,654

Less: Capitalised interest at an average rate of 2.00% (September 2018: 2.05%)

 

(41)

 

(196)

 

(428)

Finance costs for the period 

3,589

3,407

8,226

 

12.  Dividends

Accounting policy

See note 11 of the Annual Report 2019. 

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Interim dividend declared for the period ended 30 September 2019 of 1.75 cent per share (30 September 2018: 1.5 cent per share) 

11,989 

10,464

Final dividend paid for the financial year ended 31 March 2019 of 2.0 cent per share (31 March 2018: 1.9 cent per share) 

13,885

13,254

 

The Board has declared an interim dividend of 1.75 cent per share (September 2018: 1.5 cent). This dividend is expected to be paid to shareholders on 23 January 2020. All of this proposed interim dividend of 1.75 cent per share will be a Property Income Distribution ("PID") in respect of the Group's property rental business (March 2019: 2.0 cent).

Under the Irish 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 annually. The interim dividend of 1.75 cent represents c.63% of EPRA earnings per share for the period and 50% of the dividends per share paid in the prior financial year.  

13.  Earnings per share

There are no convertible instruments, options or warrants on ordinary shares in issue as at 30 September 2019 other than those arrangements relating to share-based payments. The Company has established a reserve of €1.2m (September 2018: €5.0m, March 2019: €7.6) which is mainly for the issue of ordinary shares relating to the Group's bonus schemes (and, as at 30 September 2018 and 31 March 2019, the Group's obligations under the IMA performance-related payments). It is estimated that a maximum of approximately 1.3m ordinary shares (September 2018: 3.8m; March 2019: 6.0m shares) may be issued in total under the share-based performance award schemes (note 10), 0.8m of which are provided for at 30 September 2019 and a further 0.5m of which may be recognised over the next three years, depending on performance to date and various service conditions as described in note 10. The potential maximum dilutive effect of these shares (assuming awards vest at maximum value and with no forfeits) is disclosed below.

Weighted average number of shares

Notes

Six months ended

30 September 2019

unaudited

 '000

Six months ended

 30 September 2018

unaudited

 '000

Financial year ended

31 March 2019

audited

 '000

 

Issued share capital at beginning of period

 

697,589

692,347

692,347

 

Shares issued during the period

 

4,641

5,242

5,242

 

Shares redeemed during the period

 

(13,270)

 -

 -

 

Shares in issue at end of period

21

688,960

697,589

697,589

 

Weighted average number of shares

 

692,330

694,968

694,968

 

Number of shares to be issued under share-based schemes

 

1,325

3,727

6,028

 

Diluted weighted average number of shares

 

693,655

698,695

700,996

 

 

 

Six months ended

30 September 2019

unaudited

 '000

Six months ended

 30 September 2018

unaudited

 '000

Financial year ended

31 March 2019

audited

 '000

 

Number of shares due to be issued under share-based schemes recognised at the period end

10

837

3,588

5,599

 

Number of shares due under share-based schemes not recognised at the period end

 

488

139

429

 

Number of shares to be issued under share-based schemes

 

1,325

3,727

6,028

 

Basic and diluted earnings per share (IFRS)

 

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

 

Profit for the period attributable to the owners of the Company

 

25,525

63,960

123,459

 

 

 '000

 '000

 '000

Weighted average number of ordinary shares (basic)

 

692,330

694,968

694,968

Weighted average number of ordinary shares (diluted)

 

693,655

698,695

700,996

Basic earnings per share (cent)

 

3.7

9.2

17.8

Diluted earnings per share (cent)

 

3.7

9.2

17.6

 

 

 

 

 

 

 

 

Six months ended

Six months ended

Financial year ended

 

 

 

30 September 2019

 30 September 2018

31 March 2019

 

 

 

unaudited

unaudited

audited

 

EPRA earnings per share and diluted EPRA earnings per share1

Notes

 €'000

 €'000

 €'000

 

Profit for the period attributable to the owners of the Company

 

25,525 

63,960 

123,459 

 

Less:

 

 

 

 

 

Gains and losses on investment property

7

(6,288 )

(51,131 )

(98,105 )

 

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

 

47 

20 

1,711 

 

EPRA earnings

 

19,284 

12,849 

27,472 

 

 

 

 

 

 

 

 

 

'000

'000

'000

 

Weighted average number of ordinary shares (basic)

 

692,330 

694,968 

694,968 

 

Weighted average number of ordinary shares (diluted)

 

693,655 

698,695 

700,996 

 

EPRA earnings per share (cent)

 

2.8 

1.8 

4.0 

 

Diluted EPRA earnings per share (cent)

 

2.8 

1.8 

3.9 

 

                             

1   EPRA earnings, an APM, are presented as they illustrate for investors the extent to which dividends are supported by recurring income. Therefore financial instruments used as hedges are recognised under a held to maturity model which leads to a difference in valuation basis. In December 2018, the remaining arrangement fees relating to the previous RCF were written off, which are eliminated in the EPRA calculation as a once off financing impact.

14.  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 (which is an APM) 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 assets 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 period-end EPRA NAV and adding back dividends per share paid, expressed as a percentage of opening EPRA NAV.

 

As at 30 September 2019 unaudited

As at 31 March 2019 audited

IFRS net assets at end of period (€'000)

1,211,622

1,218,539

Ordinary shares in issue ('000)

688,960

697,589

IFRS NAV per share (cent)

175.9

174.7

 

 

'000

'000

Ordinary shares in issue

688,960

697,589

Number of shares to be issued under share-based schemes (see note 13)

1,325

6,028

Diluted number of shares

 690,285

 703,617

Diluted IFRS NAV per share (cent)

175.5

173.2

 

 

 

 

€'000

€'000

IFRS net assets at end of period

1,211,622

1,218,539

Deferred tax

547

547

Net mark to market on financial assets

347

288

EPRA NAV

1,212,516

1,219,374

Diluted number of shares ('000)

690,285

703,617

EPRA NAV per share (cent)

 175.7

 173.3

 

Total accounting return

 

 

 

 

As at 30 September 2019 unaudited

As at 30 September 2018 unaudited

As at 31 March 2019 audited

Opening EPRA NAV per share

173.3c

159.1c

159.1c

Closing EPRA NAV per share

175.7c

166.3c

173.3c

Increase in EPRA NAV per share

2.4c

7.2c

14.2c

Dividends per share paid in period

2.0c

1.9c

3.4c

Total return

4.4c

9.1c

17.6c

Total accounting return ("TAR")

2.5%

5.7%

11.1%

 

Section 3 -Tangible assets

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

15.  Investment property

Accounting policy

See note 17 of the Annual Report 2019. 

In valuing the Group's investment properties, the Directors have applied a reduction of €7.3m (March 2019: €6.7m) 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 30 September 2019 unaudited

Fair value category

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

Carrying value at 31 March 2019

1,173,140

16,199

153,079

53,000

1,395,418

Additions:

 

 

 

 

 

Property purchases

7,611

 -

694

8,809

17,1141

Development and refurbishment expenditure

5,4542

4,757

330

133

10,674

Revaluations included in income statement

6,172

943

766

(1,593)

6,288

Disposals:

 

 

 

 

 

Sales


-

 -

 -

 -

 -

Transferred to owner occupied property3

(5,757)

 -

 -

 -

(5,757)

Carrying value at 30 September 2019

1,186,620

21,899

154,869

60,3494

1,423,737

1.  A VAT refund of €0.5m was received for prior years relating to the grant of VAT inclusive leases in 2DC, following its refurbishment. Gross acquisitions were therefore €17.6m.

2.  This includes capital expenditure on 1WML, SJRQ and 2WML after their transfer to the office segment.

3.  The Group plans to move to a new head office in 1WML in late 2019. During the period fit-out work has commenced on this space and therefore it has been recognised as owner occupied property in these condensed consolidated financial statements. The space currently occupied by the Group in South Dock House has been leased to a tenant from December 2019 (signed on 30 September 2019) so when the Group relocates, this space will be transferred to investment property. These transfers are recognised at fair value on the date of transfer.

4.  On 9 November 2018 the Group agreed to acquire 92.5 acres adjacent to its holdings in Newlands Cross from the Irish Rugby Football Union (the "IRFU") for initial consideration of €27m (the "IRFU Land"). If rezoning is achieved in the next 10 years the IRFU will be due additional consideration equating to 44% of the value of Hibernia's total land interests of 143.7 acres in the Newlands site at rezoning, less the initial consideration.

 

At 31 March 2019 audited

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

 53,0004

 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.

4.  On 9 November 2018 the Group agreed to acquire 92.5 acres adjacent to its holdings in Newlands Cross from the Irish Rugby Football Union (the "IRFU") for initial consideration of €27m (the "IRFU Land"). If rezoning is achieved in the next 10 years the IRFU will be due additional consideration equating to 44% of the value of Hibernia's total land interests of 143.7 acres in the Newlands site at rezoning, less the initial consideration.

There were no transfers between fair value levels during the period. €5.8m was transferred to fixed assets as described in footnote 3 to the 30 September 2019 table. This space consists of 5,400 sq. ft. in 1WML. €6m approximately will be transferred from fixed assets in late 2019 when the South Dock House premises cease to be owner occupied property and reverts to investment property. Approximately €41k of financing costs were capitalised at an effective interest rate of 2.0% in relation to the Group's developments and major refurbishments (March 2019: €0.4m). No other operating expenses were capitalised during the period.

EPRA capital expenditure

 

Six months ended

30 September 2019
unaudited
€'m

Financial year ended
31 March 2019

 audited
€'m

Acquisitions

 17.1

40.0

Analysed further as:

Purchases of investment property

17.6 

40.0

In-place portfolio - VAT refund received relating to the acquisition of 2DC

(0.5) 

-

 

 

 

Capital expenditure

 10.7

47.2

Analysed further as:

Developments1

9.3 

44.8

Maintenance capex

0.3 

0.3

Other2

1.1 

2.1

Total capital expenditure for period

27.8 

87.2

1.  Capital expenditure relating to development or major refurbishment of 1SJRQ, 1&2WML, and 2 Cumberland Place.

2.  Financing expenses capitalised and expenditure on existing properties in relation to future planning for redevelopment.

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 30 September 2019

unaudited
€'000

As at 31 March 2019

audited
€'000

Valuation per valuer's certificate

1,443,010 

 1,407,740

Owner occupied (note 16)

(11,968)

(5,643)

Income recognition adjustment1

(7,305)

(6,679)

Investment property balance at end of period

1,423,737

1,395,418

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 technique 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 30 September 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.

Valuation methodology

The following table illustrates the fair value methods applied to each segment:

Description of investment

property asset

class

Fair value of the investment property €'m at the period end

 

Narrative description of

the techniques used

 

Changes in the fair value technique during

the period

Office assets

1,187

 

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

 

Office development assets

22

 

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

Residential assets

155

 

Yield methodology using rental values capitalised with a market capitalisation rate. Net yields are used in this period. Rental values used are current and not estimated rental values. .

 

No change in valuation technique

Industrial/land assets

 60

 

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.

 

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

30 September 2019 (unaudited)

 

Market value

Estimated rental value

Equivalent yield

 

€'000

Low

 High

Low

High

Office

1,186,620

€25.00psf

€62.50psf

4.04%

6.88%

Office development

21,899

€30.00psf

€60.00psf

4.75%

4.75%

Residential1

154,869

€2,050pa

€2,650pa

3.71%2

3.97%2

Industrial/land

60,349

€5.25psf

 €9.00psf

7.74%

8.00%

1.         Average market rent for two bed apartment

2.         Now on a net basis

31 March 2019

 

Market value

Estimated rental value

Equivalent yield

 

€'000

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 market rent for two bed apartment

The sensitivities below illustrate the impact of movements in key unobservable inputs on the fair value of investment properties.

To calculate these impacts only the movement in one unobservable input is changed as if there is no impact on the other. In reality there may be some impact on yields from an ERV shift and vice versa. However, this gives an assessment of the maximum impact of shifts in each variable. If rents in the market are assumed to increase 5% from those estimated at 30 September 2019, the Group's investment property portfolio would increase in value by approximately €67.2m (March 2019: €62m). A decrease in market rents of 5% would result in a €68.2m decrease in portfolio value. A 25bp increase in equivalent yields would decrease the value of the portfolio by €92.2m (March 2019: €83m) and a 25bp decrease would result in an increase in value of €88.2m (March 2019: €95m).

30 September 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

57.2

(58.3)

(80.1)

74.5

Office development

2.2

(2.2)

(2.4)

2.6

Residential1

7.6

(7.5)

(9.6)

10.9

Industrial/land

0.2

(0.2)

(0.1)

0.2

Total

67.2

(68.2)

(92.2)

88.2

1.     ERV has no impact on valuation as residential valuations are completed on a current rent basis.

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

 

16.  Property, plant and equipment

Accounting policy

See note 18 of the Annual Report 2019. 

At 30 September 2019

 

Land and buildings

€'000

Office and

computer equipment

€'000

Leasehold improvements

and fixtures and fittings

€'000

Total

€'000

Cost or valuation

 

 

 

 

At 1 April 2019

5,942

207

596

6,745

Additions1

5,757

3

377

6,137

Revaluation recognised in other comprehensive income

627

 -

 -

627

At 30 September 2019

12,326

210

973

13,509

Depreciation

 

 

 

 

At 1 April 2019

(299)

(152)

(392)

(843)

Charge for the period

(59)

(17)

(66)

(142)

At 30 September 2019

(358)

(169)

(458)

(985)

Net book value at 30 September 2019

11,968

41

515

12,524

1.         The Group plans to move to a new head office in 1WML in late 2019. During the period fit-outwork has commenced on this space and therefore it has been recognised as owner occupied property in these condensed consolidated financial statements. The space currently occupied by the Group in South Dock House has been leased to a tenant from December 2019 (signed on 30 September 2019) so when the Group relocates, this space will be transferred to investment property. These transfers are recognised at fair value on the date of transfer.

 

At 31 March 2019

 

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

Land and buildings, 54% of South Dock House, was revalued at 30 September 2019 and at 31 March 2019 by the Group's independent valuer and in accordance with the valuation approach described within note 15. It was measured at fair value at the period end using a yield methodology using market rental values capitalised with a market capitalisation rate. 5,400 sq. ft. in 1WML was transferred at fair value on 30 September 2019 from investment property. These fair value measurements use significant unobservable inputs. The inputs used are disclosed in the table below.

Valuation inputs

 

30 September 20191

 

31 March 2019

ERV per sq. ft.

 

€57.50

 

€57.50

Equivalent yield

 

4.8%

 

5.0%

1.  SDHS only, 1WML book value is fair value at the date of transfer.

17.  Other assets

These are property assets which were acquired as part of a loan portfolio purchased to acquire some of the Group's investment properties and are not suitable for retention as investment property. Previously they were recognised as non-current assets held for sale. A profit of €5m has been realised on the disposal of these assets to date and the Directors have concluded that the fair value of the remaining assets is at least their carrying value. The sale of the remaining assets has been delayed and the Directors have concluded that it is more appropriate that they be recognised as non-current.

Section 4 - Financing including equity and working capital

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

The Group's accounting policies with respect to these items can be found in Section IV of the Annual Report 2019.

18.  Cash and cash equivalents

 

As at 30 September 2019

 €'000

 

As at 31 March 2019

 €'000

Cash and cash equivalents

25,327

22,372

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 29.d. Please also refer to note 24.b on the net debt calculations. In addition, the Company holds funds in excess of its regulatory minimum capital requirement at all times.

19.  Other financial assets

Accounting policy

See note 21 of the Annual Report 2019. 

 

As at 30 September 2019

 €'000

As at 31 March 2019

 €'000

Derivatives at fair value

 11

194

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 30 September 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 2019: €225m) using a combination of caps and swaptions to limit the EURIBOR element of interest payable to 1% on €100m of drawn debt and 0.75% on €125m of drawn debt.

 

 

20.  Trade and other receivables

Accounting policy

See note 22 of the Annual Report 2019. 

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019 audited
€'000

Non-current

 

 

Property income receivables

8,678

7,163

Recoverable capital expenditure

597

765

Balance at end of period - non-current

9,275

7,928

Current

 

 

Property income receivables

4,523

4,105

Expected credit loss allowance

(53)

 -

 

4,470

4,105

Receivable from investment property sales

 -

34,639

Deposits paid on investment property

125

145

Prepayments

495

548

Recoverable capital expenditure

321

314

Income tax refund due

11

54

VAT refundable

711

359

Balance at end of period - current

6,133

40,164

Balance at end of period - total

15,408

48,092

Of which are classified as financial assets

3,029

37,630

The non-current balance is mainly non-financial in nature; €0.6m (March 2019: €0.8m) and relates to amounts receivable from tenants in relation to capital expenditure funded initially by the Group, with the balance consisting of amounts relating to the lease incentives and deferred lease costs. Trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (note 29.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. There is no material provision for lifetime expected credit losses required, minor amounts are provided as disclosed above.

21.  Issued share capital and share premium

Accounting policy

See note 23 of the Annual Report 2019. 

 

At 30 September 2019

 

 

No. of shares in issue

 '000

Share capital
€'000

Share premium reserve
€'000

Capital redemption reserve
€'000

Total Company Capital
€'000

Balance at beginning of period

697,589

69,759

624,483

-

694,242

Shares redeemed during the period

(13,270)

(1,327)

-

1,327

-

Shares issued during the period (see below)

4,641

464

5,793

-

6,257

Balance at end of period

688,960

68,896

630,276

1,327

700,499

 

 

 

 

 

 

At 31 March 2019

 

 

 

 

 

 

 

 

 

 

 

 

No. of shares in issue

'000

Share capital
€'000

Share premium

€'000

Total Company Capital
€'000

 

Balance at beginning of period

692,347

69,235

617,461

686,696

 

Shares redeemed during the period

 -

 -

 -

 -

 

Shares issued during the period (see below)

5,242

524

7,022

7,546

 

Balance at end of period

697,589

69,759

624,483

694,242

 

                           

Shares issued during the period are as follows:

4,640,868 ordinary shares with a nominal value of €0.10 were issued during the period in settlement of share-based payments totalling €6.2m (note 10): 121,519 shares were issued on 4 April 2019 and 4,519,349 shares were issued on 24 July 2019 and the associated costs were €15k.

Share buyback programme

In April 2019 the sale of 77SJRQ was announced and the Group's intention to return the net proceeds of €35m to shareholders to maintain the Group's progress towards the lower end of our stated 20-30% target, starting with an on-market share buyback programme of €25m which commenced the same month. As at 30 September 2019 13.3m shares had been repurchased and cancelled under this buyback programme for aggregate consideration of €19m (an average purchase price of €1.43 per share). This completed on 11 November 2019 with a total of 17.6m shares repurchased and cancelled for aggregate consideration of €25.0m (average price €1.42).

Share-based payments

The Group's remuneration scheme includes awards which are made in shares or nil cost share options and which are payable to employees only after fulfilling service and/or performance conditions. Amounts provided for at 30 September 2019 were 837k shares and a maximum of a further 488k shares remain to be accrued as at the period end. Amounts due at 31 March 2019 amounted to €7.6m or 5.6m shares and 139k shares which remained to be provided. Full details on these arrangements are in note 10 above.

Share capital

Ordinary shares of €0.10 each:

 

Six months ended
30 September 2019 unaudited

'000

Financial year ended 31 March 2019

audited

'000

Authorised

1,000,000

1,000,000

Allotted, called up and fully paid

688,960

697,589

In issue at end of period

688,960

697,589

 

22.  Other reserves

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019 audited
€'0
00

Property revaluation

2,516

1,889

Cash flow hedging

(347)

(288)

Share-based payment reserve

1,168

7,556

Balance at end of period

3,337

9,157

22.a     Property revaluation reserve

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019 audited
€'000

Balance at beginning of period

1,889

1,166

Increase arising on revaluation of properties

627

723

Balance at end of period 

2,516

1,889

The Group's headquarters are carried at fair value and the remeasurement of this property is made through other comprehensive income or loss (note 16). property transferred to investment property is transferred at fair value. Therefore the amounts relating to the revaluation of this property during the period it was recognised as a fixed asset will remain in the property revaluation reserve until the asset is ultimately disposed of, at which stage they will be transferred directly to revenue reserves.  

22.b     Cashflow 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 30 September 2019 unaudited
€'000

As at 31 March 2019

audited
€'000

Balance at beginning of period

(288)

(329)

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

(59)

41

Balance at end of period

 

(347)

(288)

       

22.c     Share-based payment reserve

 

As at 30 September 2019

 unaudited
€'000

As at 31 March 2019

audited
€'000

Balance at beginning of period

7,556

8,783

Performance-related payments provided

 

188

6,658

Settlement of performance-related payments

 

(6,576)

(7,885)

Balance at end of period

 

1,168

7,556

The share-based payment reserve comprises amounts reserved for the issue of shares in respect of performance-related payments. These are discussed further in note 10.

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

Retained earnings

 

Six months ended

30 September 2019 unaudited

€'000

Financial year ended
31 March 2019

audited
€'000

Balance at beginning of period

515,140

415,414

Profit for the period

25,525

123,459

Share buy-back

(18,979)

 -

Share issuance costs

(15)

(14)

Dividends paid

(13,885)

(23,719)

Balance at end of period

507,786

515,140

In August 2019 a dividend of 2.0 cent per share (€13.9m) was 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.

Distributable reserves

 

Six months ended

 30 September 2019 unaudited

 €'000

Financial year ended
31 March 2019

 audited
€'000

Retained earnings at end of period (Company only)

425,723

436,014

Unrealised gains on investment property1

(392,153)

(388,791)

Share buy-back post period end

(6,020)

 -

Dividends payable post period end (estimated)

(11,981)

(13,969)

Distributable earnings after dividend and capital buy-back

15,569

33,254

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

 

 

24.  Financial liabilities

Accounting policy

See note 26 of the Annual Report 2019. 

24.a     Borrowings

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019

audited
€'000

Non-current

 

 

Unsecured bank borrowings

164,060

156,524

Unsecured private placement notes

74,553

74,524

Total non-current borrowings

238,613

231,048

Current

 

 

Unsecured bank borrowings

139

149

Unsecured private placement notes

369

358

Total current borrowings

508

507

Total borrowings

239,121

231,555

The maturity of non-current borrowings is as follows:

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019

audited
€'000

Less than one year

508

507

Between one and two years

 -

 -

Between two and five years

164,060

156,524

Over five years

74,553

74,524

Total

239,121

231,555

 

 

 

Movements in borrowings during the period:

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019

audited
€'000

Balance at beginning of period

231,555

219,218

Bank finance drawn during the period

37,200

340,412

Bank finance repaid during the period

(29,968)

(326,372)

Interest payable1

334

(1,703)

Balance at end of period

239,121

231,555

1. Balance in the prior 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 has 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.

The Group has €395m of debt facilities comprising:

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

·      €75m of unsecured US private placement notes, €37.5m dated January 2026 and €37.5m dated 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 Banks. 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 29.d.ii).

The private placement notes have an average maturity of 7.8 years at 30 September 2019 and were placed with a single institutional investor. Coupons are fixed so long as the Group's credit rating remains at or above 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.

24.b     Net debt reconciliation and LTV

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

 

As at 30 September 2019 unaudited
€'000

As at 31 March 2019

 audited
€'000

Cash and cash equivalents

25,327

22,372

Cash reserved1

(5,168)

(5,050)

Gross debt - fixed interest rates

(75,000)

(75,000)

Gross debt - variable interest rate

(166,645)

(159,413)

Net debt at period end

(221,486)

(217,091)

Investment property at period end

1,423,737

1,395,418

Loan to value ratio

15.6%

15.6%

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

 

Cash and cash

 equivalents

 €'000

 

Liabilities

 

 

 

 

Secured borrowings

Unsecured borrowings

Private placement notes

 

 Total

 

 

 €'000

 €'000

 €'000

 

 €'000

Net debt at as at 1 April 2018

 

17,691

 

(220,373)

 

 

 

(202,682)

Drawings

 

 

 

(31,000)

(234,412)

(75,000)

 

(340,412)

Repayments

 

 

 

251,373

74,999

 

 

326,372

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)

Borrowings

 

 

 

 -

(37,200)

 -

 

(37,200)

Repayments

 

 

 

 -

29,968

 -

 

29,968

Movement in cash and cash equivalents

2,955

 

 

 

 

 

2,955

Movement in cash reserved1

 

(118)

 

 

 

 

 

(118)

Net debt as at 30 September 2019

20,159

 

 -

(166,645)

(75,000)

 

(221,486)

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.

25.  Deferred tax liabilities

Accounting policy

See note 27 of the Annual Report 2019. 

 

As at 30 September 2019

unaudited
€'000

As at 31 March 2019

audited
€'000

The balance comprises temporary differences attributable to:

 

 

Unrealised gains on non REIT business

547

547

The Group is not generally liable for corporate taxes as it has REIT status. 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.

26.  Trade and other payables

Accounting policy

See note 28 of the Annual Report 2019. 

 

 

As at 30 September 2019

unaudited
€'000

As at 31 March 2019

audited
€'000

Current

 

 

 

Investment property payable

 

4,772

5,667

Rent prepaid

 

10,999

7,013

Rent deposits and other amounts due to tenants

 

1,054

1,222

Sinking funds

 

1,955

1,926

Trade and other payables

 

4,859

3,742

PAYE/PRSI payable

 

184

293

Balance at end of period

 

23,823

19,863

Of which are classified as financial instruments

 

2,896

3,231

Cash is held against balances due for service charges prepaid and sinking fund contributions, €4.1m (March 2019: €3.9m), and rental deposits from tenants, €1.1m (March 2019: €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 the Group.

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.

27.  Contract liabilities

Accounting policy

See note 29 of the Annual Report 2019. 

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.

 

 

 

Contract liabilities

 

 

 

€'000

Contract liabilities at 1 April 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

(Revenue)/expense recognised during the period

 

 

 78

Amounts received from customers under contracts

 

 

 3,994

Amounts paid to suppliers

 

 

(3,652)

Contract liabilities at 30 September 2019

 

 

 2,428

28.  Cash flow information

28.a     Non-cash movements in operating profit

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

 

 

 

Revaluation of investment property

15

(6,288)

(48,734)

(95,527)

Share-based payments

10

188

3,792

6,658

Prepaid remuneration expense

9

 -

2,222

2,679

Expected credit loss allowances

20

53

 -

 -

Depreciation

16

142

150

284

Taxation

 

 (26)

3

547

Non-cash movements in operating profit

 

(5,931)

(42,567)

(85,359)

28.b     Cash expended on investment property

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

 

 

 

Property purchases  (net)

15

17,114

10,424

40,030

Development and refurbishment expenditure

15

10,674

23,809

47,221

Deposit paid on investment property

20

(20)

 -

145

(Increase)/decrease in investment property costs payable

 

895

(1,564)

(549)

Cash expended on investment property

 

28,663

32,669

86,847

28.c     Cash received from sales of investment property

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

 

 

 

Property sales 

15

 -

62,565

96,077

Profit on sales 

 

 -

2,397

2,578

Decrease/(Increase) in receivable from investment property sales

 

20

34,639

 -

(34,639)

Cash received from sales of investment property

 

34,639

64,962

64,016

28.d     Cash expended on property plant and equipment

 

Notes

Six months ended

30 September 2019

unaudited

 €'000

Six months ended

 30 September 2018

unaudited

 €'000

Financial year ended

31 March 2019

audited

 €'000

 

 

 

Additions to fixed assets

16

6,137

49

52

Transferred from investment property

16

(5,757)

 -

 -

Amounts due at period end

 

(250)

 -

 -

Cash expended on investment property

 

130

49

52

28.e     Non-cash investing and financing activities

The Group has no non-cash investing and financing activities.

29.  Financial instruments and risk management

29.a     Financial risk management objectives and policy

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

29.b     Financial assets and financial liabilities

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

Asset/Liability

Carrying value

Level

Fair value calculation technique

Assumptions

Trade and other receivables

Amortised cost

3

Discounted cash flow

Most trade receivables are very short-term, the majority less than one month, and therefore face value approximated fair value on a discounted basis.

Borrowings

Amortised cost

2

Discounted cash flow

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

Derivative financial instruments

Fair value

2

Calculated fair value price

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

Trade and other payables

Amortised cost

3

Discounted cash flow

All trade and other payables that could be classified as financial instruments are very short-term, the majority less than one month, and therefore face value approximated fair value on a discounted basis

Contract liabilities

Amortised cost

3

Discounted cash flow

All contract liabilities classified as financial instruments are very short-term, the majority less than one month, and therefore face value approximated fair value on a discounted basis

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

29.c     Fair value hierarchy

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

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

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

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

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

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

As at 30 September 2019 (unaudited)

 

Level

Total

Of which are assessed as financial instruments

Measured at fair value

 Measured at amortised cost

Total financial instruments

Fair value financial instruments

 

 

€'000

€'000

€'000

€'000

€'000

€'000

Trade and other receivables

3

 15,408

 3,029

 -

 3,029

 3,029

 3,029

Derivatives at fair value

2

 11

 11

 11

 -

 11

 11

Borrowings

2

(239,121)

(238,613)

 -

(238,613)

(238,613)

(246,695)

Trade and other payables

3

(23,823)

(2,896)

 -

(2,896)

(2,896)

(2,896)

Contract liabilities

3

(2,428)

(2,428)

 -

(2,428)

(2,428)

(2,428)

 

 

(249,953)

(240,897)

 11

(240,908)

(240,897)

(248,979)

 

As at 31 March 2019 (audited)

 

Level

Total

Of which are assessed as financial instruments

Measured at fair value

 Measured at amortised cost

Total financial instruments

Fair value financial instruments

 

 

€'000

€'000

€'000

€'000

€'000

€'000

Trade and other receivables

3

 48,092

37,630

 -

 37,630

 37,630

37,630

Derivatives at fair value

2

 194

 194

 194

-

 194

 194

Borrowings

2

(231,555)

(231,555)

 -

(231,555)

(231,555)

(231,555)

Trade and other payables

3

(19,863)

(3,231)

 -

(3,231)

(3,231)

(3,231)

Contract liabilities

3

(2,008)

(2,008)

 -

(2,008)

(2,008)

(2,008)

 

 

(205,140)

(198,970)

194

(199,164)

(198,970)

(198,970)

Movements of Level 3 fair values

This reconciliation includes investment property, loans and other financial assets which are included in trade payables, trade receivables and contract liabilities. Measurement of these assets is described in note 15 (Investment property) and in the table at the start of this note.

 

As at 30 September 2019

unaudited

€'000

As at 31 March 2019

audited

€'000

Balance at beginning of period

 1,395,418

 1,308,869

Transfers out of level 3


-

 -

Purchases, sales, issues and settlement

 

 

Purchases1

 27,788

 87,251

Sales

 -

(96,077)

Loan redemption

 -

(152)

Transferred to owner occupied property

(5,757)

-

Fair value movement


6,288

 95,527

Balance at end of period

 1,423,737

 1,395,418

1. Includes development, refurbishment and maintenance expenditure.

29.d     Financial risk management

This note explains the Group's exposure to financial risks and how these risks could affect the Group's future financial performance.

Risk

Exposure arising from

Measurement

Management

Market risk - interest rate risk

Long-term borrowings at variable rates

Sensitivity analysis

Derivative products - cap/swaption arrangements

Credit risk

Cash and cash equivalents, trade receivables, derivative financial instruments

Ageing analysis, credit ratings where applicable

Cash investment policy with minimum ratings; diversification of deposits where merited

Liquidity risk

Borrowings and other liabilities

Cash flow forecasts are completed as part of budgeting process

Availability of borrowing facilities

 

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

i.      Risk management framework

The Group's Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Audit Committee is responsible for developing and monitoring the Group's risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. All of these policies are regularly reviewed in order to reflect changes in the market conditions and the Group's activities. The Audit Committee is assisted in its work by internal audit, conducted by PwC Ireland, which undertakes periodic reviews of different elements of risk management controls and procedures.

 

ii.     Market risk

Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group has no financial assets or liabilities denominated in foreign currencies. The Group's financial assets mainly comprise trade receivables. Financial liabilities comprise short-term payables, private placement notes and bank borrowings. Therefore the primary market risk is interest rate risk.

The Group has both fixed and variable rate borrowings. Variable rate borrowings consist of an unsecured revolving credit facility and the Group has partly hedged against increasing rates by entering into interest rate caps and swaptions to restrict EURIBOR costs to a maximum of 1%.

The following therefore illustrates the potential impact on profit and loss for the period of a 1% or 2% increase in EURIBOR:

As at 30 September 2019 (six months)

 

 

 

Impact on profit +1% EURIBOR Increase

Impact on profit +2% EURIBOR Increase

 

 

€'000

€'000

€'000

Amount drawn

 

(166,645)

(833)

(1,666)

Hedging (caps)

 

 

 

 

€100m expires November 2019: strike 1.00%1

 

 41,645

 -

 208

€125m expires November 2021: strike 0.75%

 

 125,000

 156

 781

Impact on profit after hedging - for six months

 

 

(677)

(677)

1. This calculation uses the more advantageous hedge first and therefore shows the best-case scenario.

As at 31 March 2019 (year)

 

€'000

Impact on profit +1% EURIBOR Increase

€'000

Impact on profit +2% EURIBOR Increase

€'000

 

Amount drawn

(159,413)

(1,594)

(3,188)

Hedging (caps)

 

 

 

€100m expires November 2019: strike 1.00%1

 34,413

-

344

€125m expires November 2021: strike 0.75%

 125,000

313

 1,563

Impact on profit after hedging - for 12 months

 

(1,281)

(1,281)

1. This calculation uses the more advantageous hedge first and therefore shows the best-case scenario.

Exposure to interest rates is limited to the exposure of the Group's earnings from borrowings. Variable rate borrowings were €166.6m (March 2019: €159.4m) and net debt (note 24.b) was €221.5m in total of which €75.0m was fixed rate private placement notes (March 2019: €217.0m of which €75m was fixed). The Group's drawings under its facilities were based on a EURIBOR rate of 0% throughout the period.

iii.    Credit risk

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

The Group has the following types of financial assets and cash that are subject to credit risk:

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

Trade and other receivables: Rents are generally received one quarter in advance from tenants and therefore there tends to be a low level of credit risk associated with this asset class. The Group has small balances in trade receivables which are immaterial in the context of credit risk.

Trade receivables are managed under a "held to collect" business model as described in note 20.

Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there are no reasonable expectations of recovery are, inter alia, the failure of a debtor to engage with the Group and make a payment plan, a failure to make contractual payments for more than 120 days, and the expectation that amounts may be irrecoverable as the tenant has vacated and refuses to engage further. The Group provided €53k against amounts likely to be irrecoverable at 30 September 2019. There were no such allowances made as at 31 March 2019.

The maximum amount of credit exposure is therefore:

 

As at 30 September 2019

unaudited

As at 31 March 2019

audited

 

€'000

€'000

Other financial assets


11

 194

Trade and other receivables


15,408

 37,630

Cash and cash equivalents

25,327

 22,372

Balance at end of period

 40,746

 60,196

 

iv.    Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient available funds to meet obligations as they fall due. Net current assets, a measure of the Group's ability to meet its current liabilities, at the period end were:

 

 

 

 

 

 

As at 30 September 2019

unaudited

€'000

As at 31 March 2019

audited

€'000

Net current assets at the period end

 

 

4,701

40,692

The nature of the Group's activities means that the management of cash is particularly important and is managed over a four-year period. The budget and forecasting process includes cash forecasting, capital and operational expenditure projections, cash in-flows and dividend payments on a quarterly basis over the four-year horizon. This allows the Group to monitor the adequacy of its financial arrangements.

The Group had access at 30 September 2019 to €153m (March 2019: €161m) in undrawn amounts under its revolving credit facility (note 24.a), which matures in December 2023.

Exposure to liquidity risk

Listed below are the contractual maturities of the Group's financial liabilities. Only trade and other payables relating to cash expenditure are included, the balance relates either to non-cash items or deferred income. These include interest margins payable and contracted repayments. EURIBOR is assumed at 0% throughout the period.

As at 30 September 2019 (unaudited)

 

Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

>5 years

Non-derivatives

 

 

 

 

 

 

 

Borrowings

 238,613

 270,691

 2,613

 2,613

 5,227

 179,724

 80,514

Trade payables

 2,896

 2,896

 2,896

 

 -

 -

 -

Contract liabilities

 2,428

 2,428

 2,428

 

 -

 -

 -

Total

 243,937

 276,015

 7,937

 2,613

 5,227

 179,724

 80,514

At 31 March 2019 (audited)

 

Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

>5 years

Non-derivatives

 

 

 

 

 

 

 

Borrowings

234,413

265,390

 2,541

 2,541

 5,082

 173,765

 81,461

Trade payables

3,231

 3,231

3,231

 -

 -

 -

 -

Contract liabilities

 2,008

 2,008

 -

 -

 -

 -

Total

239,652

270,629

7,780

2,541

5,082

173,765

81,461

 

v.     Capital management

The Group's objectives when managing capital are to:

·      Safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and

·      Maintain an optimal capital structure to minimise the cost of capital.


In order to maintain or adjust capital, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group commenced a share buyback programme during the period to return €25m, the majority of the net sales proceeds (€35m) from the sale of 77SJRQ. The Group is also obliged to distribute at least 85% of its property rental income under the REIT regime regulations.

Capital comprises share capital, reserves and retained earnings as disclosed in the condensed consolidated statement of changes in equity. At 30 September 2019 the total capital of the Group was €1,212m (March 2019: €1,219m).

The Key Performance Indicators used in evaluating the achievement of strategic objectives, and as performance measurements for remuneration, are as follows:

·      Total Property Return ("TPR") %: Measures the relative performance of the Company's investment property portfolio versus the Irish property market, as calculated by the Investment Property Databank ("IPD")/MSCI

·      Total Accounting Return ("TAR") %: Measures the absolute growth in the Group's EPRA NAV per share plus any ordinary dividends paid during the period.

·      EPRA earnings per share (cent): Measures the profit after tax excluding revaluations and gains and losses on disposals and associated taxation (if any). For property companies it is a key measure of a company's operational performance and capacity to pay dividends.

·      Total Shareholder Return ("TSR") %: Measures growth in share value over a period assuming dividends are re-invested in the purchase of shares. Allows comparison to other companies in the Group's listed peer group.

 

The Group seeks to leverage its equity capital in order to enhance returns (note 24.a). The loan to value ratio ("LTV") is expressed as net debt (note 24.b) divided by total investment property value (as shown in the balance sheet). The Group's policy is to maintain an LTV ratio of 20-30% on a through cycle basis and not to incur debt above an LTV ratio of 40% (see note 24.b).

Loan covenants

Under the terms of the major borrowing facilities, the Group is required to comply with the following key financial covenants:

·      The LTV ratio must not exceed 50%; and

·      Interest cover must be greater than 1.5 times on both an historic and forward basis for a 12-month period.

 

The Group has complied with these key covenants throughout the reporting period.

Other

In addition, the LTV ratio must remain under 50% under the rules of the Irish REIT regime.

The Company's share capital is publicly traded on Euronext Dublin and the London Stock Exchange.

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

Section V - Other

This section contains notes that do not belong in any of the previous categories.

30.  Capital commitments

The Group enters into development contracts to develop buildings in its portfolio. The total capital expenditure commitment in relation to these over the next one to two years is estimated at €32m (March 2019: €35m).

31.  Contingent liabilities

Accounting policy

See note 35 of the Annual Report 2019. 

The Group has not identified any contingent liabilities which are required to be disclosed in the condensed consolidated financial statements.

32.  Related parties

32.a     Subsidiaries

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

32.b     Other related party transactions

The rent review with WK Nowlan Real Estate Advisors, which was under review during the period ended 31 March 2019, was settled during the period. The Group earned rent of €205k (inclusive of backdated amounts) from WK Nowlan Real Estate Advisors in Marine House in the six months ended 30 September 2019 (March 2019: €115k). The Group was owed €20k in rent at the period end (March 2019: nil).

Both Kevin Nowlan and Frank O'Neill were shareholders in WK Nowlan Real Estate Advisors up until July 2019 when these shareholdings were disposed of in full.

William Nowlan was also previously a shareholder in WK Nowlan Real Estate Advisors. As part of his previous consultancy agreement with the Company, William Nowlan received €92k in consulting fees for the financial year ended 31 March 2019. Nothing was due to him at 31 March 2019. This consultancy arrangement had ceased prior to the commencement of this reporting period.

Amounts due in relation to the final tranche of the IMA performance related payments for the period ended 26 November 2018 were settled by the issuance of shares as follows: Kevin Nowlan: €2.3m, Frank Kenny: €1.5m, William Nowlan: €1.1m and Frank O'Neill: €0.5m. (March 2019: Kevin Nowlan: €2.8m, Frank Kenny: €1.8m, William Nowlan: €1.4m and Frank O'Neill: €0.6m).

As his consultancy agreement with the Company has ceased prior to the commencement of this reporting period, Frank Kenny earned no consultancy fees for the six months ended 30 September 2019 (March 2019: €140k). No amounts were owed to him in respect of consultancy fees at the period end (March 2019: €35k).

Thomas Edwards-Moss (CFO) rents an apartment from the Group at market rent and paid €6k in rent during the period (March 2019: €12k).

33.  Events after the reporting period

1.     Tax changes announced in Budget in October 2019

In the 2020 Budget (and the subsequent Finance Bill) the Irish Government announced a number of changes to the taxation of Irish property which can be categorised into those that directly impact the Group (whether immediately or potentially at some point in future) and those that do not. We summarise these changes below and estimate the impact for the Group where possible and/or appropriate. At present the Finance Bill is still subject to review and possible amendment: the final Finance Act is expected to be signed in December 2019.

 

Main tax changes directly impacting the Group

Overview

Type of change

Effective from

Impact for Hibernia

Stamp duty increased from 6% to 7.5% on all commercial property transactions in Ireland

Market change

9 October 2019 (unless a binding contract was in place before this date and it completes by 31 December 2019)

·  Cushman & Wakefield, the Group's valuer, estimates that this change would have reduced the value of the Group's portfolio at 30 September 2019 by 1.6% (€22m) had it been effective at that date

·  This is equates to a proforma 1.8% (3.3c) reduction in the Group's NAV per share at 30 September 2019

Increase in the rate of dividend withholding tax ("DWT") from 20% to 25% for all dividends paid by Irish companies

Market change

1 January 2020

·  The change affects shareholders directly

·  The impact will vary depending on the individual circumstances of each shareholder and whether relief is available under a tax treaty

Where an entity ceases to be a REIT, there will no longer be a deemed disposal and reacquisition of the assets at market value, unless the REIT has been in existence for 15 years or more.

REIT change

9 October 2019

·  No immediate change for the Group

·  If Hibernia ceased to be a REIT before the expiry of the 15 year period (i.e. before December 2028), this means the original tax basis in the assets would apply to subsequent disposals, not the market value at the date of cessation.

·  This could create latent tax for any bidder and reduce the price it would be prepared to pay to acquire the Group

85% of any proceeds a REIT generates from the sale of a rental property which are not reinvested within a three year window (spanning one year before and two years afterwards) or distributed to shareholders within two years of sale (and thus subject to DWT) will be taxed at 25% (an effective rate of 21.25% on the proceeds)

REIT change

9 October 2019

·  No immediate impact

·  Longer term impact uncertain until full terms of this change are clear

Tax changes not directly impacting the Group

 

 

2.     Share buyback

The €25m buyback programme completed on 11 November 2019, at which point 17.6m shares had been repurchased and cancelled at an average price of €1.42 per share.

3.     Interim dividend

On 11 November 2019 the Directors approved the interim dividend of 1.75 cent per share (€12.0m) which will be paid on 23 January 2020 to shareholders on the register on 3 January 2020.

I. Alternative Performance Measures

The Group has applied the European Securities and Markets Authority (ESMA) "Guidelines on Alternative Performance Measures" in this report. An Alternative Performance Measure ("APM") is a measure of financial or future performance, position or cash flows of the Group which is not a measure defined by International Financial Reporting Standards ("IFRS").

The following are the APMs used in this report together with information on their calculation and relevance.

APM

Reconciled to IFRS measure:

Reference

Definition

Contracted rent roll

n/a

n/a

Contracted rent under the lease agreements, and excluding all incentives or rent abatements, for the portfolio as at the reporting date.

EPRA cost ratios

IFRS operating expenses

II.b

Calculated using all administrative and operating expenses under IFRS net of service fees. It is calculated including and excluding vacancy costs.

EPRA earnings

IFRS profit after tax

II.a

As EPRA earnings is used to measure the operational performance of the Group, it excludes all components not relevant to the underlying net income performance of the portfolio, such as the change in value of the underlying investments and any gains or losses from the sales of investment properties.

EPRA earnings per share ("EPRA EPS")

IFRS earnings per share

Note 13

II.a

EPRA earnings on a per share basis.

EPRA like-for-like rental growth reporting

n/a

II.d

Like-for-like rental growth compares the growth of the net rental income of the portfolio that has been consistently in operation, and not under development, during the two full preceding periods that are described.

EPRA NAV

IFRS NAV

Note 14

II.f

The objective of the EPRA NAV measure is to highlight the fair value of net assets on an ongoing, long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances such as the fair value of financial derivatives and deferred taxes on property valuation surpluses are therefore excluded.

EPRA NAV per share

IFRS NAV per share

Note 14

II.f

EPRA NAV calculated on a diluted basis taking into account the impact of any options, convertibles, etc. that are "dilutive".

EPRA NNNAV

IFRS NAV per share via EPRA NAV per share

II.f

Reports EPRA NAV including fair value adjustments for any material balance sheet items which are not included in EPRA NAV at fair value.

IFRS NAV per share via EPRA NAV per share

IFRS NAV per share via EPRA NAV per share

II.f

Reports EPRA NAV including fair value adjustments for any material balance sheet items which are not included in EPRA NAV at fair value and calculated on a dilutive basis.

EPRA Net Initial Yield ("EPRA NIY")

n/a

II.e

Inherent yield of the completed portfolio using passing rent at the reporting date.

EPRA topped-up Net Initial Yield ("EPRA topped-up NIY")

n/a

II.e

Inherent yield of the completed portfolio using contracted rent at the reporting date.

EPRA vacancy rate

n/a

II.c

ERV of the vacant space over the total ERV of the completed portfolio.

Loan to value ("LTV")

n/a

Note 24.b

Net debt as a proportion of the value of investment properties

Final and interim dividend per share

Dividend per share

Note 12

Number of cent to be distributed to shareholders in dividends.

Net debt

Financial liabilities

Note 24.b

Financial liabilities net of cash balances (as reduced by the amounts collected from tenants for deposits, sinking funds and similar) available.

Passing rent

n/a

n/a

Annualised gross property rent receivable on a cash basis as at the reporting date.

Property-related capital expenditure

 

II.g.ii

Property-related capital expenditure analysed so as to illustrate the element of such expenditure that is "maintenance" rather than investment.

Reversionary potential

n/a

II.g.i

Potential rent uplift available from leases with break dates, expiring or review events in future periods.

Total accounting return ("TAR")

Indirectly through EPRA NAV

Note 14

Measures the absolute growth in the Group's EPRA NAV per share plus any ordinary dividends paid in the accounting period.

Total property return ("TPR")

n/a

n/a

Total property return is the return for the period of the property portfolio (capital and income) as calculated by MSCI, the producers of the MSCI Ireland Property Index.

II. European Public Real Estate Association ("EPRA") Performance Measures (unaudited)

EPRA Performance Measures are calculated according to the EPRA Best Practices Recommendations November 2016. EPRA Performance Measures are used in order to enhance transparency and comparability with other public real estate companies in Europe. EPRA has consulted investors and preparers of information in order to compile its recommendations. Using these measures ensures that the Group's investors can compare the Group's performance on a like-for-like basis with similar companies.

Further details on these measures are set out below, including their calculation and reconciliation to the financial statements where applicable.

EPRA performance measure

Unit

Six months ended

30 September 2019

Six months ended

30 September 2018

EPRA earnings

€'000

19,284

12,849

EPRA EPS

cent

 2.8

 1.8

Diluted EPRA EPS

cent

 2.8

 1.8

EPRA cost ratio - including direct vacancy costs

%

23.3%

42.5%

EPRA cost ratio - excluding direct vacancy costs

%

22.1%

41.1%

EPRA performance measure

Unit

 As at 30 September 2019

 As at 31 March 2019

EPRA net initial yield ("NIY")

%

3.6%

3.6%

EPRA "topped-up" NIY

%

4.2%

4.1%

EPRA net asset value ("EPRA NAV")

€'000

1,212,516

1,219,374

EPRA NAV per share

cent

175.7

173.3

EPRA triple net assets ("EPRA NNNAV")

€'000

1,203,540

1,218,539

EPRA NNNAV per share

cent

174.4

173.2

Like-for-like rental growth

%

9.1%

7.6%

EPRA vacancy rate

%

10.8%

10.7%

II.a EPRA earnings

EPRA earnings are presented as they are important for investors who want to assess the extent to which dividends are supported by recurring income.

 

Notes

Six months ended

Six months ended

Financial year ended

 

30 September 2019

 30 September 2018

31 March 2019

 

unaudited

unaudited

audited

EPRA earnings per share and diluted EPRA earnings per share

 €'000

 €'000

 €'000

Profit for the period attributable to the owners of the Company

 

25,525

63,960

123,459

Less:

 

 

 

 

Gains and losses on investment property

7

(6,288)

(51,131)

(98,105)

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

 

47

20

1,711

EPRA earnings

 

19,284

12,849

27,472

 

 

 

 

 

 

 

'000

'000

'000

Weighted average number of ordinary shares (basic)

 13

692,330

694,968

694,968

Weighted average number of ordinary shares (diluted)

 13

693,655

698,695

700,996

EPRA earnings per share (cent)

 

2.8

1.8

4.0

Diluted EPRA earnings per share (cent)

 

2.8

1.8

3.9

 

II.b EPRA cost ratio

EPRA costs are calculated below.

 

Six months ended

30 September 2019

 €'000

Six months ended

 30 September 2018

 €'000

Financial year ended

31 March 2019

 €'000

 

 

Total operating expenses under IFRS

5,753

10,444

19,291

Property expenses

1,210

1,543

2,596

Net service charge costs/fees

(39 )

(41 )

122

EPRA costs including direct vacancy costs

6,924

11,946

22,009

Direct vacancy costs

(357 )

(374 )

(545 )

EPRA costs excluding direct vacancy costs

6,567

11,572

21,464

Gross rental income

29,749

28,134

56,027

EPRA cost ratio including direct vacancy costs

23.3%

42.5%

39.3%

EPRA cost ratio excluding direct vacancy costs

22.1%

41.1%

38.3%

The Group has not capitalised any overheads in the current period or the prior financial year.

II.c  EPRA vacancy rate

This provides comparable and consistent vacancy data for investors based on the independent valuer's assessment of ERV. The EPRA vacancy rate measures the ERV of vacant space expressed as a percentage of the total ERV (including Iconic arrangement).

 

Six months ended

 30 September 2019

€'000

Financial year ended

31 March 2019

€'000

Annualised ERV vacant units

7,824

7,265

Annualised ERV completed portfolio

 72,424

 67,760

EPRA vacancy rate

10.8%

10.7%

 

II.d EPRA like-for-like rental growth

Like-for-like net rental growth compares the growth of the net rental income of the portfolio that has been consistently in operation, and not under development, during the two full preceding periods that are described. Information on the growth in rental income other than from acquisitions and disposals, allows stakeholders to arrive at an estimate of organic growth. This can be used to measure whether the reversions feed through as anticipated, and whether the vacancy rates are changing. This measure excludes rental income on disposals and acquisitions and properties under development or refurbishment during the period. All rental income is from properties based in Dublin, Ireland and the greater Dublin area.

Six months ended 30 September 2019

Whole portfolio

Like for like portfolio - six months to 30 September 2019 v six months to 31 March 2019

Segment

Value - all assets

Net rental income