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Half yearly financial report

13 Nov 2018 07:00

RNS Number : 1228H
Hibernia REIT PLC
13 November 2018
 

Half yearly financial report

For the six-month period to 30 September 2018

13 November 2018

Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces its interim results for the six months to 30 September 2018. Highlights for the period: Portfolio returns outperforming Dublin market, assisted by development programme

· Six-month total property return[1],4 of 5.9% vs IPD Ireland Index of 4.4%

· Portfolio value of €1,329.9m, up 3.9%[2] in the period (developments up 11.9%2,[3])

· EPRA NAV[4] per share of 166.3 cent, up 4.5% in the period

· Net rental income of €26.6m, up 21.5% on prior year (September 2017: €21.9m)

· Profit before tax of €64.0m including revaluation surplus (September 2017: €70.6m)

· EPRA EPS4 of 1.8c, up 38.5% on prior year (September 2017: 1.3c)

Further profitable recycling of capital into new opportunities

· Sales proceeds of €55.6m generated in the period

o Sale of New Century House for €65.3m, modestly ahead of March 2018 value

o €9.7m of acquisitions including 5.8 acres at Gateway, 129 Slaney Road and 50 City Quay

· Since 30 September 2018 a further €27m spent (initial consideration) acquiring 92.5 acres of land neighbouring Hibernia's existing interests at Gateway (Newlands): Hibernia's total holding now 143.7 acres

De-risking current developments and growing longer-term pipeline

· Three committed schemes in progress totalling 222,000 sq. ft. of Grade A offices, now >50% let

o 1SJRQ and 2WML (172,000 sq. ft.) both delivering shortly: 1SJRQ offices fully let

o Cumberland Place Phase II (50,000 sq. ft.) expected to complete in H1 2020

· Longer-term pipeline enhanced and now comprises five schemes

o Newlands land holding increased 217% to 143.7 acres through acquisitions

o 129 Slaney Road, a 3.8-acre industrial unit with potential for future rezoning to mixed use, acquired

o Office pipeline grown by up to 8% to 543,000 sq. ft.[5] following provisional planning grants

Contracted rents and portfolio WAULT at record levels following 1SJRQ letting  

· Following letting of 1SJRQ to HubSpot, annual contracted rent roll4 now €60.9m and "in-place" office portfolio WAULT to earlier of break / expiry now 7.7 years, up 9% and 5% since March 2018, respectively

· Acquired "in-place"[6] CBD offices have average rents of €41psf, reversionary potential of 20% and an average period to earlier of rent review or expiry of 2.5 years

o Nine office rent reviews active representing €2.5m of passing rent and with ERV of €4.5m

Low leverage and substantial undrawn facilities for investment

· Net debt4 at 30 September 2018 of €163.9m, LTV4 of 12.3% (March 2018: €202.7m, LTV 15.5%)

· Cash and undrawn facilities of €236.1m, €150.1m net of committed developments and Newlands acquisition

· Expect to diversify sources of debt funding and lengthen average debt maturity in the near term

 

Continued growth in dividend

· Interim dividend declared of 1.5 cent per share, up 36.4% on prior year (2017: 1.1 cent)

· Expect further growth from increase in rental income (from letting up developments and capturing reversion) and reduction in overheads (end of IMA in November 2018)

Kevin Nowlan, Chief Executive Officer of Hibernia, said:

"It has been a successful six months for Hibernia. Our portfolio returns have continued to outperform the market and we have made good progress with our committed developments and our pipeline of future schemes. With the letting of 1SJRQ to HubSpot we have de-risked over half our current development programme and our contracted rental income and average lease duration have grown to record levels. We continue to recycle capital into assets which we believe will enhance our future returns: in particular we are excited by the potential at Newlands Cross, where we now control 143.7 acres of land. 

"Hibernia is approaching five years in existence and I am delighted by the progress we have made in that time. Our portfolio now exceeds €1.3bn in value and our contracted rent roll is over €60m: following the letting of 1SJRQ over half of our contracted rent comes from buildings we have delivered or repositioned. With the expiry of the original Investment Management Agreement in late November 2018 we expect a significant reduction in on-going costs.

"We look to the future with confidence: there is a high level of demand for office and residential space in Dublin, both from tenants and investors, and the Irish economy is growing strongly. Our portfolio is rich in opportunity, we have flexible low-cost funding in place and a talented team."

 

Contacts:Hibernia REIT plc +353 1 536 9100Kevin Nowlan, Chief Executive OfficerTom Edwards-Moss, Chief Financial OfficerMurray Consultants Doug Keatinge: +353 86 037 4163, dkeatinge@murraygroup.ie Jill Farrelly: +353 87 738 6608, jfarrelly@murraygroup.ie

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

 

The results presentation will take place at 9.00 am today: a conference call facility will be available to listen to the presentation live using the following details: Ireland Dial-In: 01 691 7842 UK Dial-In: +44 (0) 20 3936 2999 Netherlands Dial-In: +31 (0)85 888 7233

United States Dial-In: +1 (0)1 845 709 8568Access Code: 606157 

 

DisclaimerThis 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 Ireland is expected to be among the best performing economies in the euro area again in 2018, as employment levels continue to grow (source: CBI, ESRI). Department of Finance forecasts, released in October with Budget 2019, increased GDP growth expectations to 7.5% and 4.5% for 2018 and 2019, respectively, up from 5.6% and 4.0% previously. Core domestic demand growth, probably a fairer assessment of the health of the economy, has been revised upwards to 6.0% (from 4.8%) for 2018 and is expected to be 4.4% in 2019 (source: Goodbody). With nearly 2.3m people in work nationwide, the highest ever level (source: ESRI, CSO), the unemployment rate has continued its downward trajectory. At the end of Q3 it stood at 5.4% nationally and 5.2% in Dublin, with projections for sub-5% unemployment nationally by 2019, marking a return to practical full employment (source: CSO, CBI). As employment levels have increased so too have wages, which are expected to grow 2.5% for the year (source: Goodbody) and may accelerate in future years as the employment market tightens. Inflation is also expected in the construction sector, with tender prices forecast to increase by over 7% in 2018 (source: SCSI). 

The Government has announced that it intends to run a balanced budget in 2019, the first time in a decade. Debt reduction remains a key priority: the 2018 debt to GDP forecast of 64% is set to reduce further to 61% by the end of 2019 (source: Dept of Finance). Capital spending, following an expected 29% increase in 2018, is forecast to increase by a further 25% in 2019 to facilitate increased investment in the infrastructure projects outlined in the National Development Plan (source: Dept of Finance, Goodbody).

While the overall economic picture remains positive, global risks, which have the potential to disrupt Ireland's continued economic success, have increased and have led the IMF to downgrade its forecast for global economic growth for 2018 by 0.2% to 3.7%. Among these, the risk of a disorderly Brexit, trade wars and a slowdown in the US economy rank particularly highly for Ireland. For the moment however, FDI into Ireland remains strong: announced IDA-sponsored jobs created grew by 15% to 8,000 in 2017, with a further 6,000 being announced in the first nine months of 2018. Dublin continues to benefit substantially from these additions, as around 50% of jobs created went to the capital. (source: Davy, IDA). Irish property investment market  In the 12 months to 30 September 2018 the IPD Ireland Property Index delivered a total return of 6.3% (vs 6.6% in 12 months to 31 March 2018): the "other commercial" sector, which includes multi-family residential, was the top performer in the 12 months to September 2018 with total return of 17.5% versus offices at 6.2% and industrial property at 8.2%. The capital growth in the office sector in the IPD Ireland Index of 1.7% in the 12 months to 30 September 2018 came from ERV growth and yield compression in broadly equal measure. Despite a large office transaction (of over €160m) in the North Docks at a yield below 4% in the period, consensus among the major agents is that prime office yields remain in the 4 - 4.25% range. Similarly, yields on prime residential assets are also at 4%, though further tightening is expected (source: CBRE).

Total investment volumes for 2018 are forecast to exceed €3bn, and by the end of Q3 2018 were already in line with volumes for the whole of 2017 at €2.6bn (source: JLL). Foreign investors continue to dominate, accounting for 78% of transactions thus far in 2018 (source: JLL). As the table below shows, eight out of the top 10 office transactions in 2018 have been to foreign buyers. Dublin offices represented 45% of total investment in the first nine months of 2018 and the residential private rented sector ("PRS") has continued to attract attention with 27% of total investment (source: Knight Frank). With estimated demand of €4bn for the PRS, investment in this sector is expected to continue to rise as construction activity increases (source: Knight Frank).

Top 10 office investment transactions (nine months to Sep-18)

Building

Price

Price psf

Buyer

Buyer nationality

1 & 2 HSQ, D8

€175m

€802psf

CK Properties Ltd

Hong Kong

No.1 Dublin Landings, D1

€164m

€1,146psf

Triuva

Germany

Dublin office asset swap,

D1 & D2

€160m

n/a

IPUT/State Street

Ireland/USA

The Beckett Building, D3

€101m

€532psf

Kookman Bank

South Korea

Belfield Office Park, D4

€90m

€308psf

Spear Street Capital

USA

New Century House, D1

€65m

€818psf

Credit Suisse

Switzerland

The Sharp Building, D2

€56m

€1,260psf

Credit Suisse

Switzerland

One & Three Gateway, D3

€29m

€306psf

Yew Grove REIT

Ireland

31-36 Golden Lane, D8

€26m

€823psf

KGAL

Germany

Two Haddington Buildings, D4

€24m

€846psf

Quadoro Doric

Germany

Source: Knight Frank

Office occupational market Following a record 3.6m sq. ft. of leasing in 2017, tenant activity in the Dublin office market has remained high in 2018: in the nine months to September 2018 take-up was 2.2m sq. ft., 67% of which was in the city centre (source: Knight Frank). At 30 September 2018 there was also more than 2.1m sq. ft. of office stock reserved (source: CBRE) which suggests that the high levels of take-up should continue in the near term, as does the volume of active demand, which although down on the previous (record) quarter, still stands at c. 5.3m sq. ft. (source: Cushman & Wakefield). Technology companies continue to be the largest takers of space, having a 39% share in the first nine months of 2018, with professional services and the public-sector accounting for 9% and 11%, respectively (source: Knight Frank). The footprint of serviced office/flexible workspace operators in the city continues to expand, accounting for 12% of take-up in the year-to-date (source: Savills, CBRE). The serviced office sector currently represents 2.5% of Dublin's CBD office stock excl. Georgian offices (source: Knight Frank), below London (4.0%) and Amsterdam (6.3%), two of the most developed serviced office markets in Europe. Excluding Amsterdam and London, the European average is generally less than 1% (source: Cushman & Wakefield). 

While the Dublin office market has garnered a 25% share of Brexit relocation announcements from London thus far (source: Knight Frank), a large proportion have not resulted in letting activity yet. Domestic and US headquartered occupiers continue to be the main takers of office space in Dublin. The top 30 lessors in the Dublin market in the nine months to September 2018 accounted for 66% of total take-up: domestic occupiers accounted for 22% of this total and US headquartered entities accounted for 67%. (source: Knight Frank). The "latent Brexit" by US technology companies we described at the time of our preliminary results in May 2018 has had a larger impact on the Dublin office market thus far than relocations from the UK and Knight Frank believes that the largest positive impact of Brexit on the Dublin office market will be from the technology sector, given its reliance on drawing skilled workers from around the world.

While Q3 2018 saw a return to more traditionally-sized leasing deals, with no deals greater than 100,000 sq. ft. signed (source: CBRE), the previous two quarters saw several large transactions. Since the period end, Facebook has agreed to lease the existing 500,000 sq. ft. of office space at the AIB Bank Centre in Ballsbridge, D4 plus the additional 350,000 sq. ft. which is due to be supplied there by 2021. Three further large deals, which total c. 650,000 sq. ft. of North Docks office space, are expected to sign in the near term, boding well for 2018 full year take-up statistics. The top 10 Dublin office lettings in the first nine months of 2018, which accounted for 37% of total take-up are set out in the table below:

Top 10 office lettings (nine months to Sep-18)

Tenant

Industry

Building

Area (sq. ft.)

% of total take-up

Google

TMT

Bolands Quay, D2

221k

13%

IDA

State

Three Park Place, D2

112k

7%

WeWork

Serviced offices

No.2 Dublin Landings, D1

100k

6%

WeWork

Serviced offices

One Central Plaza, D2

74k

4%

Google

TMT

One Grand Canal Quay, D2

58k

3%

Google

TMT

The Chase Building, D18

53k

3%

WeWork

Serviced offices

5 Harcourt Road, D2

49k

3%

Google

TMT

Blackthorn Building, D18

49k

3%

TMT tenant

TMT

1WML, D2

48k

3%

Perrigo

Pharma

The Sharp Building, D2

45k

3%

Source: Knight Frank

The overall Dublin office vacancy rate at the end of Q3 2018 was 6.7% vs. 6.2% at March 2018 and the Grade A vacancy rate in the city centre (where all of Hibernia's office portfolio is located) was 5.3% at the end of Q3 2018 vs. 4.0% at March 2018. The primary reason for the increase in these vacancy rates was the completion of the Seamark Building in Elm Park, Charlemont Exchange and 5 Hanover Quay (source: Knight Frank). Savills estimates that prime headline rents have increased by approximately 5% in 2018, though they and CBRE are in agreement that prime rents have remained stable at the €65 per sq. ft. mark in Q3. Office development pipeline The table below outlines our expectations for upcoming supply across Dublin's city centre and for the whole of Dublin by year. Overall we expect a total of 10.9m sq. ft. gross new space between 2016 and 2021, of which 71% will be in the CBD.

Year

City centre supply

All Dublin supply

2016

1.0m sq. ft.

1.1m sq. ft.

2017

0.9m sq. ft.

1.4m sq. ft.

2018f

1.7m sq. ft. (83% pre-let)

2.3m sq. ft. (70% pre-let)

2019f

1.0m sq. ft. (58% pre-let)

1.6m sq. ft. (45% pre-let)

2020f

2.0m sq. ft. (24% pre-let)

2.3m sq. ft. (21% pre-let)

2021f

1.1m sq. ft. (0% pre-let)

2.2m sq. ft. (16% pre-let)

Total 2016-21

7.7m sq. ft.

10.9m sq. ft.

The active pre-letting/mid-letting market has continued with over one-third of all letting deals signed in 2018 of this nature (source: CBRE): major pre/mid-let deals include WeWork, Iconic Offices, Facebook and HubSpot.

Residential sector Housing delivery continues to increase with 19,271 new homes delivered in 2017 and a further 17,500 and 22,000 units expected to complete in 2018 and 2019, respectively (source: Rebuilding Ireland/Government of Ireland & CBI). These completion figures, coupled with a 52% year-on-year increase in planning permissions granted in Q2 2018, is evidence that progress is being made in terms of housing supply (source: Davy). Despite this apparent improvement in housing provision, overall 2018 supply is expected to lag housing demand by around 50% (source: Goodbody). House price inflation appears to be reflecting the increase in supply and mortgage limits, running at 5.9% for the year to September nationwide and 2.5% in Dublin (source: Davy).

The expected introduction of the Land Development Agency ("LDA"), to facilitate better use of land held by state bodies, should assist in bringing further supply to the market in due course. The LDA will work with public and private sector land owners to unlock key sites with a focus on the overall public interest in determining land use. The agency aspires to deliver 150,000 units over the next 20 years and, pre-establishment, has secured lands capable of delivering 3,000 homes.

Although supply is increasing, the fundamentals of the market continue to attract institutional investors and as noted in our investment market commentary above, investor demand far outweighs current supply.

 

Business review

Acquisitions and disposals

We have continued to recycle capital into new opportunities, generating net disposal proceeds in the six months to 30 September 2018 of €55.6m (€54.6m including transaction costs) (six months to 30 September 2017: nil) from the disposal of New Century House and several small acquisitions. Since 30 September 2018 we have made a further acquisition for €27m excluding transaction costs.

Disposals

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

Acquisitions

· 129 Slaney Road, D11: the 62,000 sq. ft. industrial property on a 3.8-acre site in the Dublin Industrial Estate was bought for €4.8m in July 2018. The property is fully let, producing rent of €0.5m per annum, with a WAULT of 8.5 years to expiry and a WAULT to break of 1.9 years. We believe the property has potential for a future mixed-use development (see further details in the Developments section below)

· 50 City Quay, D2: the 4,500 sq. ft. office building, which neighbours 1SJRQ and faces onto the River Liffey, was acquired for €2.7m in July 2018. The property, which is vacant and in need of refurbishment, expands the Windmill Quarter to six buildings with c. 400,000 sq. ft. of office accommodation, when complete, as well as retail and leisure facilities

Newlands lands, D24: an additional 5.8 acres of land at Newlands Cross was acquired in August 2018 for €1.7m. The land is currently zoned for agriculture and adjoins the 31.3 acres acquired by Hibernia in 2017 for €6.0m (See further below)

Acquisitions post 30 September 2018

· Further Newlands lands, D24: A further 92.5 acres of land at Newlands Cross was acquired in November 2018 for initial consideration of €27m, plus potential deferred consideration based on receiving a 44% share of the market value of all lands upon rezoning, less the initial consideration. The land is also zoned for agricultural use and adjoins Hibernia's existing holding. Following this acquisition Hibernia's property interest in the Newlands Cross area totals 143.7 acres (see further details in the Developments and Refurbishments section below)

 

 

Portfolio overview

As at 30 September 2018 the property portfolio consisted of 33 investment properties valued at €1,330m (31 March 2018: 32 investment properties valued at €1,309m), which can be categorised as follows: 

 

Value as at

Sep 18

% of portfolio

Equivalent yield

Passing rent12

€'m

Contracted rent12

€'m

ERV12

€'m

 

1. Dublin CBD offices

Traditional core

€447m

34%

5.2%2

€21.6m

€21.6m

€25.0m

 

IFSC

€204m

15%

4.8%

€10.3m

€10.3m

€11.1m

 

South Docks

€334m3

25%

4.8%

€14.0

€15.4m

€18.1m

 

Total Dublin CBD offices

€985m

74%

5.0%2

€45.9m

€47.3m

€54.2m

 

2. Dublin CBD office development4

€173m

13%

-

-

€6.8m

€13.0m10

 

3. Dublin residential5

€148m

11%

4.0%6

€5.6m9

€5.6m

€6.8m11

 

4. Industrial

€24m

2%

 4.4%7

€1.1m

€1.3m

€1.3m

 

Total

€1,330m

100%

4.8%2,6,8

€52.6m9

€60.9m

€75.3m

 

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

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

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

4. Includes 2WML, 1SJRQ & Cumberland Place Phase 2

5. Includes 1WML residential element (Hanover Mills)

6. These are the net yields assuming 80% net-to-gross and purchaser costs. C&W has valued Wyckham Point, Dundrum View, Cannon Place and Hanover Mills on a gross yield basis excl. acquisition and management costs: gross initial yield is 4.7% and gross market reversion is 5.7%

7. Current rental value assumed as ERV as these assets are now being valued on a price per acre basis

8. Excl. all CBD office developments

9. Residential rent on a net basis

10. As per valuer's ERV @ Sep-18. 1SJRQ ERV based on office rents of €57.50psf which is lower than the rent achieved

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

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

The office element of our portfolio, which comprises 87% by value and 89% of our contracted income had the following statistics at 30 September 2018 (we include also the letting of 1SJRQ to HubSpot, which was signed in November 2018):

 

 

Contracted rent

ERV

WAULT to review 1

WAULT to break/expiry

% of rent upwards only

% of next rent review cap & collar

% of rent MTM 2 at next lease event

Acquired "in-place" office portfolio

€26.7m (€41psf)

€32.0m (€49psf)

2.5yrs

4.5yrs

16%

7%

77%

Completed office developments 3

€20.5m (€52psf)

€20.6m (€52psf)

3.6yrs

10.5yrs4

-

35%

65%

Whole in-place office portfolio

€47.3m (€45psf)

€52.6m (€50psf)

3.0yrs

7.1yrs

9%

19%

72%

Pre-let committed schemes5

€6.8m (€60psf)

€6.7m (€58psf)

5.0yrs

12.0yrs

-

-

100%

Whole office portfolio

€54.0m (€46psf)

€59.3m (€51psf)

3.2yrs

7.7yrs4

8%

17%

75%

1. To earlier of review or expiry

2. Mark-to-market

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

4. Including extension of break option in 1&2DC agreed as part of 1SJRQ letting

5. 1SJRQ

Increasing portfolio income and extending unexpired lease terms remains a key strategic priority. We are achieving this through the completion and letting of our new office developments and through rent reviews and lease renewals within the "in-place" portfolio. Since 31 March 2018 we have:

· Added €6.8m to office portfolio income with term certain of 12 years through the letting of 1SJRQ (see further details in Asset Management section below)

· Added €0.5m through one new lease and one rent review. The rent review delivered an uplift of over 140% on the previous passing rent and was ahead of valuers' ERV. The acquired "in-place" office portfolio has an average period to the earlier of rent review or expiry of 2.5 years and reversionary potential of 20% (at valuers' ERVs) and as at 30 September 2018 nine office rent reviews were outstanding 

The "in-place" office portfolio vacancy rate was 3% at 30 September 2018 (31 March 2018: 3%).

 

 

PORTFOLIO PERFORMANCE

In the six months to 30 September 2018 the portfolio value increased €21.2m or 3.9% on a like-for-like basis (i.e. excluding acquisitions, disposals and capital expenditure).

 

 

Value as at Mar-18

Capex

Acquisitions 1

Disposals 2

Revaluation

Value as at Sep-18

L-f-L change

1. Dublin CBD offices

 Traditional core

€436m

-

-

-

€11m

€447m

€11m

2.5%

 IFSC

€261m

€2m

-

(€62m)

€3m

€204m

€3m

1.3%

 South Docks

€322m

€1m

€3m

-

€8m

€334m3

€8m

2.5%

 Total Dublin CBD offices

€1,019m

€3m

€3m

(€62m)

€22m

€985m

€22m

2.3%

2. Dublin CBD office development

€134m

€20m

-

-

€18m

€173m

€18m

11.9%

 3. Dublin residential

€138m

-

€1m

-

€9m

€148m

€9m

6.6%

 4. Industrial/other

€18m

-

€7m

-

(€1m)

€24m

-

2.2%

Total

€1,309m

€23m

€11m

(€62m)

€48m

€1,330m

€49m

3.8%

1. Including acquisition costs

2. As at March 2018 valuation (smoothed). Sale price was €65.3m and net proceeds after sales costs were €65.0m

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

 

The key individual valuation movements in the period were:

· 1SJRQ, South Docks: €11.7m / 11% uplift driven by compression of the equivalent yield from 4.75% to 4.5%, an increase in the headline market rent from €56 per sq. ft. to €57.50 per sq. ft. and the project getting closer to development completion

· 2WML, South Docks: €6.4m / 17% uplift driven by a change from valuing the asset on a development basis to investment basis. This led to the release of developer's profit, finance costs and double acquisition costs, though the uplift was moderated by a move in the equivalent yield from 5.0% to 5.25% to reflect the change in valuation methodology. The headline market rent also increased from €53 per sq. ft. to €54 per sq. ft.

· Block 3, Wyckham Point, D14: €6.0m / 7% uplift driven by yield compression from 4.0% NIY to 3.8% NIY. The valuer's assessment of market rent also increased by 5%

· 1WML, South Docks: €5.0m / 4% uplift driven by the equivalent yield on the office building moving from 4.6% to 4.4%

· 1 Cumberland Place, D2: €4.4m / 3% uplift due to the movement of the equivalent yield on the building from 4.75% to 4.6%

 

Developments and refurbishments

Schemes completed None in the period.

Committed development schemes At 30 September 2018, we had three committed schemes in progress which will deliver c. 222,000 sq. ft. of new and refurbished Grade A office space: over 50% of this is now let.

· 172,000 sq. ft. of offices completing shortly: comprising 1 Sir John Rogerson's Quay ("1SJRQ") and 2 Windmill Lane ("2WML"). Both projects are in Hibernia's first cluster of office buildings, the Windmill Quarter, in the South Docks. With the completion of these two projects by early 2019 the Windmill Quarter will be finished and will comprise c. 400,000 sq. ft. of office space along with further residential, food & beverage and gym areas. As announced today (13 November 2018), HubSpot agreed to let all 112,000 sq. ft. of office space in 1SJRQ on a long lease commencing in June 2019 (see further details in Asset Management Section).

· 50,000 sq. ft. of offices completing in 2020: Phase II Cumberland Place, D2, is now under way and is scheduled to complete in the first six months of 2020. The new building will be in front of the existing building at 1 Cumberland Place and has the potential either to link into the existing reception or to be separately accessed, with additional flexibility to interlink certain floors to the existing building if required. Phase II will bring the total office area on the site to c. 180,000 sq. ft.

At 30 September 2018 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (222,000 sq. ft.) in the committed developments (1SJRQ, 2WML and Cumberland Place Phase 2) of €55.92 per sq. ft. and was assuming an average yield of 4.75% upon completion: based on these assumptions they expect a further c. €8m 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. €13m of difference to the development profits, and a €2.50 per sq. ft. change in estimated rental value ("ERV") would result in a c. €10m difference. If current market conditions prevail, we would expect these yields to tighten once the buildings are completed and let. Please see further details on the committed development schemes below:

 

Sector

Total area post completion (sq. ft.)

Full purchase price

Capex/Est. capex

Est. total cost (incl. land)

ERV 1

Office ERV1

Expected practical completion ("PC") date

2WML

Office

60k office

12k gym

€21m

€22m

€678psf2

€3.5m

€54.08psf2

Q4 2018

1SJRQ

Office

112k office

7k food & beverage

€18m

€58m

 

€639psf 2

€6.7m

€57.50psf2

Q1 2019

Office space fully let

Cumberland Phase 2

Office

50k office

1k retail/café

€0m

€30m

€600psf2

€2.8m

€54.61psf2

H1 2020

Total committed

 

222k office

20k retail/gym

 

€39m

€110m

 

€13.0m

 

 

1. Per C&W valuation at 30 September 2018

2. Office demise only

Development pipeline We have three office schemes in the future pipeline (treating Clanwilliam Court and Marine House as one project) which, if undertaken, would deliver up to an estimated 543,000 sq. ft. of high quality office space upon completion: this figure has increased by 8% since 31 March 2018 due to the addition of up to 38k sq. ft. extra space from provisional grants of planning. Two of these future projects, Clanwilliam Court / Marine House and Harcourt Square, provide us with opportunities to create clusters of office buildings with shared facilities similar to the Windmill Quarter referred to above.

In the longer term there is potential for mixed-use development schemes at Gateway/Newlands Cross, where we now own 143.7 acres, and 129 Slaney Road, where we own 3.8 acres. In both cases re-zoning will be necessary and so the timing of any future developments is uncertain at present.

Offices

Sector

Current area

( sq. ft.)

Area post completion

(sq. ft.)

Full purchase price

Comments

Blocks 1, 2 & 5 Clanwilliam Court and Marine House

Office

139k

200k

€80m

Refurbishment/redevelopment opportunity post 2020/2021

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

Decision to grant planning to refurbish Marine House, under appeal

Harcourt Square

Office

117k on1.9 acres

315k

€72m

Lease to OPW until Dec 2022

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

Decision to grant planning for 315k sq. ft. (up from full planning 277k sq. ft.), subject to appeal

One Earlsfort Terrace

Office

22k

28k

€20m

Current planning permission for two extra floors

Potential for redevelopment as part of wider Earlsfort Centre scheme

Total offices

 

278k

543k

€172m

 

Mixed-use

 

 

 

 

 

Gateway & Newlands Cross Lands

 

143.7 acres

n/a

€48m1

Strategic transport location

Potential for future mixed-use redevelopment

Decision to grant planning for new access road, subject to appeal

129 Slaney Road

 

65k on

3.8 acres

n/a

€5m

Strategic transport location

Potential for future mixed-use development subject to rezoning

Total mixed -use

 

147.5 acres

n/a

€53m

 

1. Initial consideration including transaction costs

Asset management

In the period we added €6.9m to contracted rents through lettings and €0.4m though rent reviews, a total of €4.9m net of lease expiries, surrenders, sales and acquisitions, increasing the contracted rent roll by 9% to €60.9m (note: figures include letting of 1SJRQ to HubSpot, which occurred after period end). Nine office rent reviews are currently active representing €2.5m of contracted rent with an ERV of €4.5m.

Summary of letting activity since 31 March 2018 (including letting of 1SJRQ)

Offices:

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

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

 

Residential:

· 293 of the Company's 328 apartments are located in Dundrum and, in the period, average rents achieved in new lettings by the Company for two bed apartments in Dundrum were €1,843 per month vs average two bed passing rents of €1,771 per month

· Letting activity and lease renewals at Dundrum generated incremental gross annual rent of €0.1m in the period (new leases signed on 31 apartments and leases renewed on 27 apartments)

At 31 March 2018 the vacancy rate in the office portfolio was 3%, based on lettable area.  

 

 

Key asset management highlights1SJRQ, South DocksAs announced separately today (13 November 2018), HubSpot has agreed to let all of the office accommodation in the building (112,000 sq. ft.) on a 20 year, with 12 years term certain, commencing in June 2019. HubSpot will pay an initial rent of €6.8m per annum, equating to €59.75psf, after a four-month rent free. As part of the letting, HubSpot, which also occupies 73,000 sq. ft. in One and Two Dockland Central, has agreed to extend the date of its break options in these buildings by three and a half years to coincide with those at 1SJRQ. Hibernia is also in discussions with various food and beverage operators regarding the 7,000 sq. ft. of retail space in 1SJRQ.

2WML, South Docks After period end Perpetua, a leading gym operator, agreed to let the ground floor, a 12,000 sq. ft. gym, at an initial rent of €0.1m per annum, rising to €0.2m per annum by year three, on a 10-year lease, with six years term certain. We believe the gym will prove to be a popular amenity for the Windmill Quarter. Discussions continue with potential occupiers for the 60,000 sq. ft. of office accommodation in the building which is scheduled to complete in by the end of 2018.

50 City Quay, South Docks The 4,500 sq. ft. riverside office building, which occupies a prominent corner adjacent to the Windmill Quarter, was acquired vacant (see further details above). We are currently considering our options to improve the building, which is in need of refurbishment.

Cannon Place, D4 The tenants in the 16 units moved out during the year ended March 2018 to enable remedial works to be carried out. These works are now complete and we are considering disposing of the asset and recycling the capital into other opportunities.

Central Quay, South Docks Daqri, which occupies the first floor (11,000 sq. ft.) and is paying rent of €0.6m per annum, has served notice that it will be exercising its break option in March 2019. The remaining vacant space on the ground floor (5,000 sq. ft.) and the third floor (12,000 sq. ft.) continues to be marketed.

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

The Forum, IFSC Hibernia continues to consider options for the building, with Depfa Bank ("Depfa") having served notice to terminate its leasehold interests in March 2019. Depfa occupies all 47,000 sq. ft. of office accommodation, along with 50 car parking spaces, and is paying an annual rent of €2.0m. The September 2018 ERV of the offices is in excess of the passing rent. 

Hardwicke & Montague House, D2 There are seven rent reviews outstanding in the buildings, relating to 81,000 sq. ft. of office accommodation, with passing rents of €2.4m and ERV of €4.3m.

Observatory, South Docks A 10 year lease has been signed with Goldentree Asset Management for the ground floor office suite of 1,200 sq. ft. generating rent of €0.1m per annum, equating to €60 per sq. ft.: the lease has a term certain of five years.

Flexible workspace arrangement The flexible workspace arrangement with Iconic Offices ("Iconic") in 21,000 sq. ft. of Block 1 Clanwilliam Court continues to perform ahead of budget, with 97% of the workstations occupied and 84% of the available co-working memberships rented as at 30 September 2018.

Other completed assets The remaining completed properties in the portfolio remain close to full occupancy. The average period to rent review or lease expiry for the acquired "in-place" office portfolio (not including recently completed developments) is 2.5 years.

Financial results and position

 As at

 

30 September 2018

31 March 2018

Movement

IFRS NAVPS

 

167.2

160.6

+4.1%

EPRA NAVPS1

 

166.3

159.1

+4.5%

Net debt1

 

 €163.9m

 €202.7m

(19.1%)

Group LTV1

 

12.3%

15.5%

(20.6%)

Financial period ended

 

30 September 2018

30 September 2017

Movement 

Profit before tax for the period

 

 €64.0m

 €70.6m

(9.5)%

EPRA earnings1

 

 €12.8m

 €9.0m

+42.4%

IFRS EPS

 

9.2 cent

10.2 cent

(9.8)%

Diluted IFRS EPS

 

9.2 cent

10.2 cent

(9.8)%

EPRA EPS 1

 

1.8 cent

1.3 cent

+38.5%

Proposed interim DPS1

 

1.5 cent

1.1 cent

 +36.4%

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

The key drivers of EPRA NAV per share, which increased 7.2 cent from 31 March 2018 were:

- 6.9 cent per share from the revaluation of the property portfolio, including 2.7 cent per share in relation to development properties: the yield compression seen in the market helped the value of the Group's more prime office assets and its residential assets

- 1.8 cent per share from EPRA earnings in the period

- 0.4 cent per share from profits on the sale of an investment property

- Payment of the FY18 final dividend, which reduced NAV by 1.9 cent per share

 

EPRA earnings was €12.8m, up 42.4% compared to the same period in the prior year. The uplift was principally due to increased rental income as a result of new lettings made at our developments in the prior financial year. Administrative expenses (excluding performance related payments) were €7.6m (Sep 2017: €6.5m). Performance related payments were €2.8m (Sept 2017: €2.2m) and related to performance fees accrued, the majority due to the Group's outperformance of the IPD Ireland index in the period.

Profit before tax was €64.0m, a reduction of 9.5% over the prior year, mainly due to lower revaluation gains in the financial period compared to the same period last year. For reference, the six months ended 30 September 2017 saw significant yield compression in the office sector: the increase in stamp duty on Irish commercial property transactions introduced last year took effect from 11 October 2017 and hence is not seen in the comparator period's financial performance. The impact had it been effective at 30 September 2017 would have been to reduce valuation gains by an estimated €53.7m.

Financing and hedging The Group has a single revolving credit facility of €400m which matures in November 2020. As at 30 September 2018, net debt was €163.9m, a loan to value ratio ("LTV") of 12.3%, down from net debt of €202.7m (LTV of 15.5%) at 31 March 2018 due to the disposal of New Century House together with some smaller acquisitions and capital expenditure on developments. Cash and undrawn facilities as at 30 September 2018 totalled €236.1m or €150.1m net of committed capital expenditure and the acquisition of further land at Newlands Cross announced in November 2018. Assuming full investment of the available RCF funds in property, the LTV, based on property values at 30 September 2018, would be c. 25%. The Group's through-cycle leverage target remains 20-30% LTV. The Group's policy is to fix or hedge the interest rate risk on the majority of its drawn debt. As at 30 September it had interest rate caps and swaptions with 1% strike rates in place covering the interest rate risk on €244.7m of the RCF drawings, comprising:

- €100m cap expiring November 2018 / €100m swaption exercisable in November 2018 and terminating in November 2020 (this portion of hedging expired in November 2018)

- €100m cap expiring November 2019 / €100m swaption exercisable in November 2019 and terminating in November 2021

- €44.7m cap (originally put in place for the 1WML secured facility) expiring in January 2019 

The Group expects to diversify its sources of debt funding and lengthen the average maturity of its debt in the near term.

Dividend The Group's policy is to distribute 85-90% of recurring rental profits via dividends each year, with the interim dividend in a year usually representing 30-50% of the total ordinary dividends paid in respect of the prior financial year. Taking account of this policy, the anticipated growth in rental income in the current year and the dividends of 3.0 cent per share paid in respect of the prior year, the Board has declared an interim dividend of 1.5 cent per share (2017: 1.1 cent).

The interim dividend will be paid on 24 January 2019 to shareholders on the register as at 4 January 2019. All of the dividend will be a Property Income Distribution ("PID") in respect of the Group's property rental business as defined under the Irish REIT legislation.

Hibernia's Dividend Reinvestment Plan ("DRIP") is available to shareholders and allows them to instruct Link, the Company's registrar, to reinvest the dividends paid by Hibernia into the purchase of shares in the Company. The terms and conditions of the DRIP and information on how to apply are available on the Group's website.

Arrangements regarding the expiry of the Investment Management Agreement The five-year term of the Investment Management Agreement ("IMA") entered between Hibernia REIT plc ("Hibernia" or "the Company") and WK Nowlan REIT Management Ltd (its former Investment Manager) expires on 26 November 2018. As part of the arrangements for the internalisation of the Investment Manager in 2015 (the "Internalisation") it was agreed that any payments due under the IMA each financial year would be paid, mainly in shares, in lieu of a separate incentive scheme until 26 November 2018. From this date onwards the Company's new Remuneration Policy, which was approved by shareholders at the Company's AGM in July 2018, will take effect.

The Board has considered how best to calculate any performance fees and other related payments for the final period of the IMA from 1 April 2018 to 26 November 2018. Since the IPD Ireland Index, which is used in the calculation of any relative performance fees, reports on a quarterly basis the Board has determined that it is most appropriate to measure the Company's performance to 31 December 2018, being the nearest quarter end, and to pro-rate any performance fees due for the fact that the final IMA period expires on 26 November 2018. Any performance fees due will be paid primarily in shares (subject to the standard lock-up provisions) which will issue only once the audit of the accounts for the year ended 31 March 2019 is completed.

Management changes

With effect from 1 January 2019 Justin Dowling, currently Head of Asset Management, will become Director of Property with responsibility for managing all Hibernia's property assets and leading the Asset Management and Building Management teams. Frank O'Neill, currently Chief Operations Officer, will retain responsibility for business support areas, including IT, HR and general business operations, working on a part-time basis. He will continue as a member of Hibernia's management committees. His new title will be Director of Operations.

As part of the Internalisation Frank Kenny and William Nowlan entered into consultancy agreements for the period up to 26 November 2018. Frank Kenny, who is also a non-executive Director of Hibernia, will continue to provide advice on the Company's development projects and his agreement will be extended until 31 March 2019.

 Selected portfolio information

1. Summary EPRA measures

 

 

 

EPRA performance measure

 

 

 

Unit

 

 

Six months ended

30 September 2018

 

 

Six months ended

30 September 2017

EPRA earnings

€'000

12,849

9,024

EPRA earnings per share

Cent

1.8

1.3

Diluted EPRA EPS

Cent

1.8

1.3

EPRA cost ratio - including vacancy costs

%

42.5%

44.1%

EPRA cost ratio - excluding vacancy costs

%

41.1%

41.8%

 

 

EPRA performance measure

 

 

 

Unit

 As at 30 September 2018

 As at 31 March 2018

EPRA Net Initial Yield ("NIY")

%

4.1%

3.8%

EPRA 'topped-up' NIY

%

4.2%

4.3%

EPRA Net Asset Value ('EPRA NAV')

€'000

1,166,542

1,112,075

EPRA NAV per Share

Cent

166.3

159.1

EPRA triple net assets ('EPRA NNNAV')

€'000

1,166,266

1,111,730

EPRA NNNAV per share

Cent

166.3

159.1

Like-for-like rental growth

%

7.6%

6.5%1

EPRA vacancy rate

%

3.0%

2.0%

112 months ended 31 March 2018

 

 

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

 

 

 

 

Top 10 tenants

€ 'm

%

Sector

 

1

 The Commissioners of Public Works

6.0

12.7%

Government

 

2

 Twitter International Company

5.1

10.8%

TMT

 

3

 Hubspot Ireland Limited 1

3.8

8.0%

TMT

4

 TMT Tenant

2.8

5.9%

TMT

5

 Informatica Ireland EMEA

2.1

4.4%

TMT

6

 Depfa Bank plc

2.0

4.2%

Banking and capital markets

 

7

 Electricity Supply Board

1.9

4.0%

Government

8

 Travelport Digital Limited

1.8

3.8%

TMT

 

9

 IWG

1.8

3.8%

Serviced offices

10

 BNY Mellon

1.6

3.4%

Banking and capital markets

 

 

Top 10 total

28.9

61.0

 

 

 

Rest of portfolio

18.4

39.0

 

 

 

Total contracted "in-place" office rent

47.3

100.0

 

 

1Excludes 1SJRQ lease agreed in November 2018

 

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

Sector

€ 'm

%

TMT1

21.1

44.6

Government

10.3

21.8

Banking & capital markets

7.1

15.0

Professional services

4.3

9.1

Serviced offices

2.3

4.9

Insurance & reinsurance

1.2

2.5

Other

1.0

2.1

Total

47.3

100.0

1Excludes 1SJRQ lease agreed in November 2018

 

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

 

Sep-17

Movement to Mar-18

Mar-18

Movement to Sep-18

Sep-18

All office contracted rent1,2,4

€43.5m

+14%

€49.6m

+9%

€54.0m

In-place office contracted rent1,4

€41.3m

+23%

€49.6m

-5%

€47.3m

In-place office WAULT3

6.9yrs

+6%

7.3yrs

-3%

7.1yrs5

In-place office vacancy4

10%

-7%

3%

-

3%

1. Excl. arrangement with iconic Offices at Block 1 Clanwilliam

2. Including pre-let of 1SJRQ

3. To earlier of break or expiry

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

5. Increases to 7.7 years with inclusion of 1SJRQ pre-let

 

 

Principal Risks and Uncertainties

There are a number of risks and uncertainties which could have a significant impact on the Group's performance and could cause actual results to differ materially from expected results. The Directors consider that the principal risks and uncertainties to the Group, which are set out on pages 40 to 47 of the 2018 Annual Report, are substantially unchanged for the remaining six months of the financial year. These risks and uncertainties are summarised, together with a short update where relevant, below.

Strategic risks: inappropriate business strategy

Office leasing continues to be strong with almost 40% of take-up coming from the TMT sector in the first nine months of 2018 and a number of very large lettings in the market. The Group prepares a rolling three-year forecast which is assessed at each quarterly Board meeting and used in considering strategic direction. This risk remains the same as at the financial year ended 31 March 2018.

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

Strong growth in the Irish economy is forecast into 2019. The Department of Finance expects Irish GDP growth of 7.5% in 2018 and 4.5% in 2019. However risks are increasing: domestically the possibility of a general election in the next six months has risen, and with the employment market approaching full employment, inflation may increase. Internationally the risks of a disorderly Brexit, global trade wars and a slowdown in US economic growth have increased, all of which would be negative for Ireland. The Group has continued to work to extend its WAULT which now stands at 7.7 years for the whole office portfolio (including the HubSpot letting), up from 7.3 years at 31 March 2018 helping to reduce vacancy risks in a market downturn.

Development risks: poor execution of development projects

Construction cost inflation is estimated to be high single digit percent per annum and this is likely to impact on the profitability of future developments. Therefore the Group views this risk as increased for the remaining six months of the financial year 2019. The Group uses fixed rate contracts to remove cost inflation risk during the construction phase. The Group has a highly experienced internal development team and partners with contractors with proven track records which also helps to mitigate construction risks, including the risks of breaching building standards. As at 30 September 2018 the Group had three committed schemes, totalling 222k sq. ft. of offices: two of these will complete in the next few weeks while the third has commenced and is targeted for completion in H1 2020. More than 50% of this space is now let following the HubSpot lease in 1SJRQ.

Investment risks: poor/mis-timed investment or sale or asset allocation

The Group's portfolio was worth €1.3billion at 30 September 2018 and comprised 33 properties, the largest being 11% of the portfolio by value (31 March 2018: 11%). The Group has been a net seller of assets since 31 March 2018, disposing of New Century House for €65m and recycling €10m into four new acquisitions in the six months ending 30 September 2018, where it believes it can generate better returns. This risk therefore remains stable.

Asset management risks: poor asset management leading to underperformance

The Group continues to work to implement improvements in asset and building management and this risk remains stable. Sustainability targets include resource management and tenant consultation to improve general satisfaction and identify priorities for future initiatives. Compliance with sustainability and environmental standards has been an increasing focus. The Group completed its first GRESB assessment during the period and has identified areas to improve performance in future.

Finance risks: inappropriate capital structure or lack of available funding

At 30 September 2018 the Group's indebtedness was low with a LTV ratio of 12% (31 March 2018: 16%). Committed capital expenditure in the next 18 months and post balance sheet acquisitions are expected to increase the LTV ratio to c.18%. At 30 September 2018 the Group had cash and undrawn facilities totalling €236m, or €150m net of committed capital expenditure and the acquisition of further land at Gateway announced in November 2018, (31 March 2018: €197m or €120m, respectively), and just over two years until the maturity of its debt facilities. The Group continues to monitor its capital requirements closely and expects to extend its average debt maturity and diversify its sources of funding in the near term. Consequently, it does not foresee this risk increasing for the remaining six months of the financial year 2019. No covenant breaches occurred in the period.

People risks: Loss of key staff and/or motivation

The Group's current performance remuneration arrangements end on 26 November 2018. A new Remuneration Policy was approved by shareholders at the AGM in July 2018 which will replace the existing arrangements when they expire. This risk will remain stable for the remining six months of the financial year.

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

Regulatory, legislative and tax risks remain stable and we review them regularly with our professional advisers.

Business interruption risks: adverse external event

Cyber security continues to be a focus. The Group has continued to improve its IT security measures during 2018 by reviewing controls and working with our IT consultants. The implementation of GDPR was completed in this period. Business continuity plans are reviewed periodically. Other business interruption risks remain stable.

 

 

 

Directors' Responsibilities Statement

 

Each of the Directors, whose names appear on page 79 of this report confirm to the best of their knowledge that the condensed consolidated interim financial statements in the Half Yearly Financial Report have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union ("EU") and the interim management report[7] herein contains a fair review of the information required by Disclosure and Transparency Rules of the Central Bank of Ireland, namely:

- 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 2018 to 30 September 2018 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 2018 to 30 September 2018 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

12 November 2018

 

 

INDEPENDENT REVIEW REPORT TO HIBERNIA REIT PLC

We have been engaged by the Hibernia REIT plc ("the Company") to review the interim financial information included in the Half Yearly Financial Report for the six months ended 30 September 2018 which comprise the condensed consolidated statement of financial position as at 30 September 2018 and the related condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows, and the related notes 1 to 29 for the six-month period then ended ("interim financial information"). We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial information.

This report is made solely to the company in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE 2410") issued by the International Auditing and Assurance Standards Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this review report, or for the conclusions we have formed.

Directors' responsibilities

The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report which includes the interim financial information, in accordance with the International Accounting Standard 34, ''Interim Financial Reporting,'' as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007, and the Transparency Rules of the Central Bank of Ireland.

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The interim financial information included in this Half Year Financial Report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the interim financial information in the Half-Yearly Financial Report based on our review.

Scope of our review

We conducted our review in accordance with ISRE 2410. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information in the Half-Yearly Financial Report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with the International Accounting Standard 34, ''Interim Financial Reporting,'' as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007, and the Transparency Rules of the Central Bank of Ireland.

 

 

Christian MacManus

For and on behalf of Deloitte Ireland LLP

Chartered Accountants and Statutory Audit Firm

Deloitte & Touche House, Earlsfort Terrace, Dublin 2

 

12 November 2018

Condensed Consolidated Income Statement

For the six months ended 30 September 2018

 

 

 

Six months ended

30 September 2018 Unaudited

 

Six months ended

30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

Notes

 

€'000

 

€'000

 

€'000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

5

 

30,656

 

25,928

 

54,168

Income

 

 

 

 

 

 

 

Rental income

 

 

28,134

 

23,579

 

49,075

Service charge income

6

 

2,522

 

2,349

 

5,019

Service charge expense

6

 

(2,481 )

 

(2,485 )

 

(5,224 )

Property expenses

6

 

(1,543 )

 

(1,579 )

 

(3,147 )

Net rental income

 

 

26,632

 

21,864

 

45,723

 

 

 

 

 

 

 

 

Gains and losses on investment property

7

 

51,131

 

61,626

 

87,802

Other gains and (losses)

 

 

34

 

(1,082 )

 

(41 )

Total income after revaluation gains and losses

77,797

 

82,408

 

133,484

 

 

 

 

 

 

 

 

 

Expense

 

 

 

 

 

 

 

Performance-related payments

9

 

(2,841 )

 

(2,179 )

 

(6,599 )

Administration expenses

8

 

(7,603)

 

(6,501 )

 

(13,517 )

Total operating expenses

 

 

(10,444)

 

(8,680 )

 

(20,116 )

Operating profit

 

 

67,353

 

73,728

 

113,368

 

 

 

 

 

 

 

 

Finance income

 

 

17

 

4

 

7

Finance expense

 

 

(3,407 )

 

(3,085 )

 

(6,243 )

Profit before tax

 

 

63,963

 

70,647

 

107,132

Income tax

 

 

(3 )

 

(43 )

 

(31 )

Profit for the period

 

 

63,960

 

70,604

 

107,101

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

Basic earnings per share (cent)

11

 

9.2

 

10.2

 

15.5

Diluted earnings per share (cent)

11

 

9.2

 

10.2

 

15.4

EPRA earnings per share (cent)

11

 

1.8

 

1.3

 

2.8

Diluted EPRA earnings per share (cent)

11

 

1.8

 

1.3

 

2.8

            

 

 

 

 

 

 

Condensed Consolidated statement of comprehensive income

For the six months ended 30 September 2018

 

 

 

Six months ended

 30 September 2018

 Unaudited

 

Six months ended

30 September 2017

Unaudited

 

Financial year ended

 31 March 2018 Audited

 

Notes

 €'000

 

 €'000

 

 €'000

 

 

 

 

 

 

 

Profit for the period

 

63,960

 

70,604

 

107,101

 

 

 

 

 

 

 

Other comprehensive income, net of income tax

 

 

 

 

 

 

 

 

 

 

 

 

Items that will not be reclassified

subsequently to profit or loss:

 

 

 

 

Gain on revaluation of property

14

100

 

542

 

657

 

 

 

 

 

 

 

Items that may be reclassified

subsequently to profit or loss:

 

 

 

 

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

19b

(48 )

 

(36 )

 

(112 )

 

 

 

 

 

 

 

Total other comprehensive income

 

52

 

506

 

545

 

 

 

 

 

 

 

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

 

64,012

 

71,110

 

107,646

 

 

 

Condensed Consolidated Statement of Financial Position

As at 30 September 2018

 

 

 

 30 September 2018

Unaudited

 

31 March 2018 Audited

 

Notes

 €'000

 

 €'000

Assets

 

 

 

 

Non-current assets

 

 

 

 

Investment property

13

1,329,925

 

1,308,717

Property, plant and equipment

14

5,410

 

5,411

Other financial assets

16

173

 

240

Trade and other receivables

17

7,992

 

7,787

Total non-current assets

 

1,343,500

 

1,322,155

Current assets

 

 

 

 

Trade and other receivables

17

2,771

 

7,239

Cash and cash equivalents

15

54,316

 

22,521

 

 

57,087

 

29,760

Non-current assets classified as held for sale

 

534

 

534

Total current assets

 

57,621

 

30,294

 

 

 

 

 

Total assets

 

1,401,121

 

1,352,449

Equity and liabilities

 

 

 

 

Capital and reserves

 

 

 

 

Issued capital and share premium

18

694,242

 

686,696

Other reserves

19

5,918

 

9,620

Retained earnings

20

466,106

 

415,414

Total equity

 

1,166,266

 

1,111,730

Non-current liabilities

 

 

 

 

Financial liabilities

21

211,269

 

218,409

Total non-current liabilities

 

211,269

 

218,409

 

 

 

 

 

Current liabilities

 

 

 

 

Financial liabilities

21

907

 

809

Trade and other payables

22

20,394

 

19,756

Contract liabilities

23

2,285

 

1,745

Total current liabilities

 

23,586

 

22,310

 

 

 

 

 

Total equity and liabilities

 

1,401,121

 

1,352,449

 

 

 

 

 

IFRS NAV per share (cents)

12

167.2

 

160.6

EPRA NAV per share (cents)

12

166.3

 

159.1

Diluted IFRS NAV per share (cents)

12

166.3

 

159.1

 

 

 

 

Condensed Consolidated statement of changes in equity

For six months ended 30 September 2018 (Unaudited)

 

 

 

 

Share capital

 

Share premium

Retained earnings

 

Other reserves

 

Total

 

 

€'000

 

€'000

€'000

 

€'000

 

€'000

Balance 1 April 2017

 

68,545

 

609,565

325,983

 

9,759

 

1,013,852

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Profit for the period

 

 -

 

 -

70,604

 

 -

 

70,604

Total other comprehensive income

 

 -

 

 -

 -

 

506

 

506

 

 

68,545

 

609,565

396,587

 

10,265

 

1,084,962

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

 

 

Dividends

 

 -

 

 -

(10,040)

 

 -

 

(10,040)

Issue of Ordinary Shares in settlement of share-based payments

690

 

8,791

 -

 

(9,481)

 

 -

Share issue costs

 

 -

 

 -

(14)

 

 -

 

(14)

Share-based payments

 

 

 

 

 -

 

4,136

 

4,136

 

 

 

 

 

 

 

 

 

 

Balance 30 September 2017

 

69,235

 

618,356

386,533

 

4,920

 

1,079,044

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Profit for the period

 

 -

 

 -

36,497

 

 -

 

36,497

Total other comprehensive income

 

 -

 

 -

 -

 

39

 

39

 

 

69,235

 

618,356

423,030

 

4,959

 

1,115,580

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

 

 

Dividends

 

 -

 

 -

(7,616)

 

 -

 

(7,616)

Issue of Ordinary Shares in settlement of share-based payments

 -

 

(895)

 -

 

895

 

 -

Share issue costs

 

 -

 

 -

 -

 

 -

 

 -

Share-based payments

 

 -

 

 -

 -

 

3,766

 

3,766

 

 

 

 

 

 

 

 

 

 

Balance 31 March 2018

 

69,235

 

617,461

415,414

 

9,620

 

1,111,730

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

Profit for the period

 

 -

 

 -

63,960

 

 -

 

63,960

Total other comprehensive income

 

 -

 

 -

 -

 

52

 

52

 

 

69,235

 

617,461

479,374

 

9,672

 

1,175,742

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

 

 

 

 

Dividends

 

 -

 

 -

(13,254)

 

 -

 

(13,254)

Issue of Ordinary Shares in settlement of share-based payments

524

 

7,022

 -

 

(7,546)

 

 -

Share issue costs

 

 -

 

 -

(14)

 

 -

 

(14)

Share-based payments

 

 -

 

 -

 -

 

3,792

 

3,792

 

 

 

 

 

 

 

 

 

 

Balance 30 September 2018

 

69,759

 

624,483

466,106

 

5,918

 

1,166,266

 

 

 

Consolidated statement of cashflows

For the six-month period 1 April 2018 to 30 September 2018

 

Notes

Six months ended 30 September 2018

 Unaudited

 

 

 

 Six months ended 30 September 2017 Unaudited

 

 

 

Financial year ended

31 March 2018 Audited

Cash flows from operating activities

 

€'000

 

€'000

 

€'000

Profit for the period

 

63,960

 

70,604

 

107,101

Gain on sales of investment property

7

(2,397)

 

 -

 

(6,425)

Net finance expense

 

3,390

 

3,081

 

6,236

Income tax

 

3

 

43

 

31

Adjusted for non-cash movements:

24

(42,570)

 

(55,125)

 

(68,746)

Operating cash flow before movements in working capital

 

22,386

 

18,603

 

38,197

Decrease/(Increase) in trade and other receivables

 

1,225

 

689

 

(989)

(Decrease)/Increase in trade and other payables

 

(928)

 

1,590

 

945

Increase in contract liabilities

 

540

 

747

 

884

Net cashflow from operating activities

 

23,223

 

21,629

 

39,037

Cash flows from investing activities

 

 

 

 

 

 

Cash paid for investment property

24

(32,669)

 

(34,122)

 

(93,787)

Cash received from sales of investment property

 

64,962

 

 -

 

35,815

Purchase of fixed assets

14

(49)

 

(176)

 

(238)

Income tax received/(paid)

 

8

 

 -

 

(4)

Finance income

 

17

 

4

 

7

Finance expense

 

(2,929)

 

(2,620)

 

(5,378)

Net cashflow absorbed by investing activities

 

29,340

 

(36,914)

 

(63,585)

Cashflow from financing activities

 

 

 

 

 

 

Dividends paid

 

(13,254)

 

(10,040)

 

(17,656)

Borrowings drawn

21

22,500

 

26,004

 

86,454

Borrowings repaid

21

(30,000)

 

 -

 

(39,674)

Derivatives premium paid

 

 -

 

(189)

 

(189)

Share issue costs

 

(14)

 

(14)

 

(14)

Net cash inflow from financing activities

 

(20,768)

 

15,761

 

28,921

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

31,795

 

476

 

4,373

Cash and cash equivalents start of period

 

22,521

 

18,148

 

18,148

Increase/ (decrease) in cash and cash equivalents

 

31,795

 

476

 

4,373

Net cash and cash equivalents at end of period

 

54,316

 

18,624

 

22,521

 

 

 

Notes to the condensed consolidated interim financial statements

Section 1 - General

The accounting conventions and accounting policies employed in the preparation of these condensed consolidated interim 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 2018 as described in the Annual Report and referenced in this document as appropriate except as noted below. 

The Group has applied IFRS 9 and IFRS 15 for the first time in these condensed consolidated interim financial statements (note 3). There was no material impact on these interim results or on the financial position as at 1 April 2018. These condensed consolidated interim 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 2018.

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 interim 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 2018 are unaudited but have been reviewed by the independent auditor, Deloitte, whose report is set out on page 20 of this report. The summary financial statements for the year ended 31 March 2018 that are presented in the condensed consolidated interim financial statements represent an abbreviated version of the full accounts for that year on which the independent auditor, Deloitte, issued an unqualified audit report and are not annexed to these interim 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 2018 ("The Annual Report 2018") are available upon request from the Company Secretary or from www.hiberniareit.com. The financial statements for the financial year ended 31 March 2018 have been filed in the Companies Registration Office.

These condensed consolidated financial statements were approved for issue by the Board of Directors on 12 November 2018.

b. Alternative performance measures

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

c. Functional and presentation currency

These condensed consolidated interim 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 interim financial statements incorporate the condensed consolidated interim 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 interim financial statements have been prepared on a going concern basis. The Directors have performed an assessment of going concern for a minimum period of 12 months from the date of signing of this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 30 September 2018 of €54m (31 March 2018: €23m), is generating positive operating cashflows and, as discussed in note 21, has in place a debt facility with a period to maturity of 2 years and an undrawn balance of €187m at 30 September 2018 (31 March 2018: €179m). The Group has assessed its liquidity position and there are no reasons to expect that the Group will not be able to meet its liabilities as they fall due for the foreseeable future.

f. Significant judgements

The preparation of the condensed consolidated interim 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 interim financial statements:

Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these condensed consolidated interim financial statements is determined on such a basis, except for share-based transactions that are within the scope of IFRS 2 (see note 9 for more details), leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value such as value in use in IAS 36.

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

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

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

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

Valuation basis of investment property

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

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

- 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.

Block 3 Wyckham Point and Hanover Mills: both properties are held for long-term property rental and were developed on this basis. VAT was payable on the acquisition (in the case of Block 3 Wyckham Point only) and on the construction costs for both schemes which has been treated as irrecoverable and recognised as part of the capital costs of both projects. If either property is sold within five years of completion, the Group would be obliged to charge VAT on the sale but would be entitled to a recovery of the VAT incurred on the construction and acquisition costs on an apportioned basis according to the VAT life of the building. As neither property is intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the valuer's valuation of either asset was deemed necessary.

Share-based payments

The Group has a number of share-based payment arrangements in place. The determination of the grant date in particular can be complex in nature and significant judgement is required in the interpretation and application of IFRS 2 to these arrangements. The calculation of the absolute element of the performance fee requires some judgement around adjustments to EPRA NAV and while not material in nature, due to the related party nature of the performance-related payments, these are reviewed by the Audit Committee. 

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 2018 by the external valuer, Cushman and Wakefield ("C&W"), a firm employing qualified valuers in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). Further information on the valuations and the sensitivities is given in note 13.

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 interim 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 €6.3m (31 March 2018: €6.8m).

There were no other significant judgements or key estimates that might have a material impact on the condensed consolidated interim financial statements at 30 September 2018.

 

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

Changes in accounting standards

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

IFRS 2 (amendment) Classification and measurement of Share based payments transactions changes the classification and measurement of certain cash-based and mixed share-based payments. This applies to minor amounts of equity settled share-based payments which may have a cash element in settling employee tax obligations (note 9).

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Measurement and Recognition

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

The Group has elected to adopt the new general hedge accounting model in IFRS 9. A review of the accounting was completed during the financial year ended 31 March 2018. Under IFRS 9, the Group's hedges on interest rates on its debt continue to be recognised as cashflow hedges. Accounting for the cost of hedging, which is not material, has been applied prospectively, without restating comparatives.

The Group has quantified the impact on its consolidated financial statements resulting from the application of IFRS 9. A small amount of the Group's receivables is classified as financial assets, the majority of which are of a very short-term nature, are within agreed terms and have no historic losses. The move from an incurred loss model to an expected loss model has therefore had an immaterial effect on balances. The implementation of IFRS 9 resulted in the reclassification of the Group's loans held (note 16) from amortised cost to fair value through profit or loss (FVPL) which has also had an immaterial effect.

On this basis, the classification and measurement changes do not have a material impact on the Group's consolidated financial statements and IFRS 9 was therefore adopted with no restatement of comparative information and no adjustment to retained earnings on application at 1 April 2018. In line with the transition guidance in IFRS 9, the Group has not restated the 31 March 2018 prior year or the 30 September 2017 condensed consolidated interim financial statements.

IFRS 15 Revenue from Contracts with Customers' and the related 'Clarifications to IFRS 15 Revenue from Contracts with Customers' (hereinafter referred to as 'IFRS 15') replace IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related interpretations. In preparation for the transition to IFRS 15, the Group reviewed all material contracts to identify contracts with customers that fall within the scope of IFRS 15. The Group has reviewed its policies and disclosures to ensure that users of the accounts can understand the nature, amount, timing and uncertainty of revenue. The adoption of this standard applied to the accounting for service charge income, facilities management fees and performance fees but excluded rent receivable, the Group's main source of income, which is still within the scope of IAS 17 (and from 1 April 2019 IFRS 16). The Group has completed its implementation of this standard with no material impact on the financial statements. The service charge income stream is accounted for as a single performance obligation satisfied over time by measuring its progress towards complete satisfaction of that performance obligation. Management fees relating to the provision of services to tenants are recognised as these services are provided. This is in line with the prior recognition approach that has been used to recognise these elements of revenue and related expenditure under the previous accounting policy.

Implementation of this standard has not resulted in any restatement of comparatives presented nor equity balances carried forward. Disclosures have been reviewed and amended as appropriate in the relevant notes to these condensed consolidated financial statements.

Accounting policies applied from 1 April 2018: New policies are disclosed where relevant in the notes to the financial statements.

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

Impacts expected from relevant new or amended standards

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

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

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

Section 2 - Performance

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

4. Operating segments

A. Basis for segmentation

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

Reportable segment

Description

Office Assets

Office assets comprise central Dublin completed office buildings, all of which are either generating rental income or 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 usually 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") 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 Assets

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

Other Assets

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

Central Assets and Costs

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

 

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

B. Information about reportable segments

The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses, which comprises revenue (rental and service charge income and other gains and losses such as development management fees), property outgoings, revaluation of investment properties and other gains and losses. Total income after revaluation gains and losses includes rental income which is used as the basis to report key measures such as EPRA Net Initial Yield ("NIY") and EPRA "topped-up" NIY. These Alternative Performance Measures ("APMs") (detailed in the supplementary section at the back of this report) measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiration of rent-free period or other lease incentives, respectively.

An overview of the reportable segments is set out below:

Group consolidated segment analysis

For the six months ended 30 September 2018

Unaudited

 

 

 

Office assets

Office development assets

 

Residential assets

 

Industrial assets

 

Other assets

Central assets and costs

Group consolidated position

 

€'000

€'000

€'000

€'000

€'000

€'000

€'000

Total revenue

26,822

 -

3,386

448

 -

 -

30,656

Income

 

 

 

 

 

 

 

Rental income

24,300

 -

3,386

448

 -

 -

28,134

Service charge income

2,522

 -

 -

 -

 -

 -

2,522

Service charge expense

(2,481 )

 -

 -

 -

 -

 -

(2,481 )

Property expenses

(842 )

(5 )

(669 )

(27 )

 -

 -

(1,543 )

Net rental 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 after revaluation gains and losses

47,758

18,427

11,789

(211 )

34

 -

77,797

Expense

 

 

 

 

 

 

 

Performance-related payments

 -

 -

 -

 -

 -

(2,841 )

(2,841 )

Administration expenses

 -

 -

 -

 -

 -

(7,453 )

(7,453 )

Depreciation

 -

 -

 -

(150 )

(150 )

Total operating expenses

 -

 -

 -

 -

 -

(10,444 )

(10,444 )

Operating profit

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 before tax

46,145

18,427

11,789

(211 )

34

(12,221 )

63,963

Income tax

 -

 -

 -

 -

 -

(3 )

(3 )

Profit 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 2018

Audited

 

 

 

Office assets

Office Development assets

 

Residential assets

 

Industrial assets

 

Other assets

Central assets and costs

Group consolidated position

 

€'000

€'000

€'000

€'000

€'000

€'000

€'000

Total revenue

47,028

 -

6,475

665

 -

 -

54,168

Income

 

 

 

 

 

 

 

Rental income

41,935

 -

6,475

665

 -

 -

49,075

Service charge income

5,019

 -

 -

 -

 -

 -

5,019

Service charge expense

(5,224 )

 -

 -

 -

 -

 -

(5,224 )

Property expenses

(1,814 )

 -

(1,257 )

(16 )

(60 )

 -

(3,147 )

Net rental income

39,916

 -

5,218

649

(60 )

 -

45,723

Gains and losses on investment property

34,311

38,405

16,781

(1,695 )

 -

 -

87,802

Other gains and (losses)

 -

 -

 -

 -

(41 )

(41 )

Total income after revaluation gains and losses

74,227

38,405

21,999

(1,046 )

(60 )

(41 )

133,484

Expense

 

 

 

 

 

 

 

Performance-related payments

 -

 -

 -

 -

 -

(6,599 )

(6,599 )

Administration expenses

 -

 -

 -

 -

 -

(13,232 )

(13,232 )

Depreciation

 -

 -

 -

(285 )

(285 )

Total operating expenses

 -

 -

 -

 -

 -

(20,116 )

(20,116 )

Operating profit

74,227

38,405

21,999

(1,046 )

(60 )

(20,157 )

113,368

Finance income

 -

 -

 -

 -

 -

7

7

Finance expense

(2,838 )

 -

 -

 -

(103 )

(3,302 )

(6,243 )

Profit before tax

71,389

38,405

21,999

(1,046 )

(163 )

(23,452 )

107,132

Income tax

 -

 -

 -

 -

 -

(31 )

(31 )

Profit for the period

71,389

38,405

21,999

(1,046 )

(163 )

(23,483 )

107,101

 

 

 

 

 

 

 

 

Total segment assets

1,034,046

134,500

139,025

17,800

686

26,392

1,352,449

 

 

 

 

 

 

 

 

Investment property

1,017,937

134,500

138,480

17,800

 -

 -

1,308,717

 

 

 

For the six months ended 30 September 2017

Unaudited

 

 

 

Office assets

Office Development assets

 

Residential assets

 

Industrial assets

 

Other assets

Central assets and costs

Group consolidated position

 

€'000

€'000

€'000

€'000

€'000

€'000

€'000

Total revenue

21,940

504

3,217

267

 -

 -

25,928

Income

 

 

 

 

 

 

 

Rental income

19,575

470

3,217

317

 -

 -

23,579

Service charge income

2,349

 -

 -

 -

 -

 -

2,349

Service charge expense

(2,485 )

 -

 -

 -

 -

 -

(2,485 )

Property expenses

(821 )

(91 )

(598 )

(69 )

 -

 -

(1,579 )

Net rental income

18,618

379

2,619

248

 -

 -

21,864

Gains and losses on investment property

46,112

17,429

44

(1,959 )

 -

 -

61,626

Other gains and (losses)

 -

 -

 -

 -

 -

(1,082 )

(1,082 )

Total income after revaluation gains and losses

64,730

17,808

2,663

(1,711 )

 -

(1,082 )

82,408

Expense

 

 

 

 

 

 

 

Performance-related payments

 -

 -

 -

 -

 -

(2,179 )

(2,179 )

Administration expenses

 -

 -

 -

 -

 -

(6,373 )

(6,373 )

Depreciation

 -

 -

 -

 -

 -

(128 )

(128 )

Total operating expenses

 -

 -

 -

 -

 -

(8,680 )

(8,680 )

Operating profit

64,730

17,808

2,663

(1,711 )

 -

(9,762 )

73,728

 

 

 

 

 

 

 

 -

Finance income

 -

 -

 -

 -

 -

4

4

Finance expense

 -

 -

 -

 -

 -

(3,085 )

(3,085 )

Profit before tax

64,730

17,808

2,663

(1,711 )

 -

(12,843 )

70,647

Income tax

(8 )

 -

 -

 -

 -

(35 )

(43 )

Profit for the period

64,722

17,808

2,663

(1,711 )

 -

(12,878 )

70,604

 

 

 

 

 

 

 

 

Total segment assets

1,039,876

99,715

118,064

17,500

537

30,426

1,306,118

 

 

 

 

 

 

 

 

Investment property

1,030,929

99,716

117,464

17,498

 -

 -

1,265,607

 

C. Geographic information

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

D. Major customers

Included in gross rental income are rents of €3.0m which arose from the Office of Public Works (i.e. the Irish government), the Group's largest tenant, which contributed more than 10% of the rental income in the period. No other single tenant contributed more than 10% of the Group's revenue in the period. Two tenants contributed more than 10% each in the year ended 31 March 2018.

5. Total revenue

Accounting policy

See note 5 of the Annual Report 2018.

Service charge income and other sums receivable from tenants are recognised as revenue in accordance with the policy disclosed in note 6 below.

 

 

Six months ended

30 September 2018 Unaudited

 

Six months ended

30 September 2017 Unaudited

 

Financial year ended

31 March 2018

Audited

 

 

 €'000

 

 €'000

 

 €'000

 

 

 

 

 

 

 

Gross rental income

 

28,563

 

22,413

 

46,306

Rental incentives

 

(429 )

 

1,166

 

2,769

Rental income

 

28,134

 

23,579

 

49,075

Service charge income

 

2,522

 

2,349

 

5,019

Other income

 

 -

 

 -

 

74

 

 

 

 

 

 

 

Total revenue

 

30,656

 

25,928

 

54,168

 

Disaggregation of revenue

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

Note 4: Operating segments discloses the analysis of revenue and income and expense in line with the Group's business model, i.e. by investment property category. In order to complete the disaggregation of revenue by categories that depict how the nature, amount, timing and uncertainty of revenue and cashflows are affected by economic factors, an analysis of the revenue for the period by duration of lease contract is provided below. Additional information on portfolio characteristics that impact on income is set out in the Business review.

 

 

 

 

 

Six months ended

 30 September 2018 Unaudited

 

Six months ended

30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

 €'000

 

 €'000

 

 €'000

Expiring:

 

 

 

 

 

 

One year or less

 

 

 

 

 

 

Rental income

 

6,868

 

4,063

 

11,857

Service charge income1

 

2,522

 

2,349

 

5,019

Other income1

 

 -

 

 -

 

74

 

 

 

 

 

 

 

One year or less

 

9,390

 

6,412

 

16,950

Between one and five years

 

8,080

 

5,680

 

15,471

Greater than five years

 

13,186

 

13,836

 

21,747

 

 

 

 

 

 

 

 

 

30,656

 

25,928

 

54,168

1Service charge income is included within the one-year segment as these arrangements, while provided for under the lease contracts, are negotiated on an annual basis. Other income is once-off in nature and is recognised in the one year or less segment.

 

6. Net property expenses

Accounting policy

The Group enters into property management arrangements with tenants as part of its activities. These arrangements constitute a separate performance obligation for the provision of office space to tenants. Buildings with multiple tenants share the costs of common areas and pooled services under these arrangements. The Group manages these costs for tenants and earns a management fee for the provision of shared services on a cost-plus basis. As a landlord, costs of vacant areas are absorbed by the Group and included in other property expenses.

Costs for each building are budgeted for each period and billed to tenants. Budget variations are dealt with on completion of the period and the costs overruns or savings on budget are billed or reimbursed to tenants. Service charge income and expense is recognised only as the service is completed, i.e. on an input basis.

 

 

 

Six months ended

30 September 2018 Unaudited

 

Six months ended

30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

 €'000

 

 €'000

 

 €'000

 

 

 

 

 

 

 

Service charge income

 

(2,522 )

 

(2,349 )

 

(5,019 )

Service charge expense

 

2,481

 

2,485

 

5,224

Other property expenses

 

1,543

 

1,579

 

3,147

 

 

 

 

 

 

 

 

 

1,502

 

1,715

 

3,352

 

Included in other property expenses is an amount of €0.4m (30 September 2017: €0.6m; 31 March 2018: €1.2m) relating to void costs, i.e. costs relating to properties which were not income-generating during the financial period.

7. Gains and losses on investment property

 

 

 

Six months ended

30 September 2018 Unaudited

 

Six months ended

 30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

Note

 €'000

 

 €'000

 

 €'000

Revaluation of investment property

13

48,734

 

61,626

 

81,377

Gains on sale of investment property

 

2,397

 

 -

 

6,425

 

 

 

 

 

 

 

Gains and losses on investment property

 

51,131

 

61,626

 

87,802

 

 

 

 

 

 

 

The Group sold New Century House during the period for €65.0m, net of costs, realising a profit of €2.4m on book value at the sales date. Sales of three properties in the financial year ended 31 March 2018 realised proceeds of €35.8m and a profit over book value of €6.4m after costs. 

8. Administration expenses

Accounting policy

See note 9 of the Annual Report 2018.

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

 

 

 

 

Six months ended

30 September 2018

Unaudited

 

Six months ended

30 September 2017

Unaudited

 

Financial year ended

31 March 2018

 Audited

 

Note

 €'000

 

 €'000

 

 €'000

 

 

 

 

 

 

 

Non-executive Directors' fees

 

217

 

149

 

286

Professional valuers' fees

 

135

 

151

 

281

Prepaid remuneration expense

 

2,222

 

2,222

 

4,444

Depository fees

 

164

 

129

 

278

Depreciation

14

150

 

128

 

285

"Top-up" internalisation expenses

9

1,113

 

890

 

1,743

Staff costs

 

2,044

 

1,630

 

3,405

Other administration expenses

 

1,558

 

1,202

 

2,795

 

 

 

 

 

 

 

Administration expenses

 

7,603

 

6,501

 

13,517

 

All fees paid to non-executive Directors are for services as Directors to the Company. Non-executive Directors receive no other benefits other than Frank Kenny who also received €70k in consulting fees during the period (note 28). Non-executive Directors' fees increased from €300k to €435k from 1 April 2018. For further details see the Report of the Remuneration Committee on pages 95 to 127 of the Annual Report 2018.

Prepaid remuneration expense relates to the recognition of payments to Vendors of the Investment Manager that are contingent on the continued provision of services to the Group over the period during which the Group benefits from the service. These payments were made in November 2015 as part of the internalisation of the Investment Manager and were made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. The clawback arrangements over one-third of this payment are removed on each anniversary of the acquisition date until November 2018. €0.5m (30 September 2017: €4.9m; 31 March 2018: €2.7m) is included in trade and other receivables as prepaid remuneration (note 17).

"Top-up" internalisation expenses relate to additional management fees that would have been due under the IMA due to increases in NAV in the period since internalisation. These are payable in shares of the Company (note 9).

Professional valuers' fees are paid to Sherry FitzGerald (Commercial) Limited, trading as Cushman & Wakefield (formerly DTZ Sherry FitzGerald) ("C&W"), in return for their services in providing independent valuations of the Group's investment properties on an at least twice-yearly basis. The fees are charged on a fixed rate per property valuation.

 

9. Share-based payments

Accounting policy

See note 11 of the Annual Report 2018. Amendments to IFRS 2 became effective for this period. Payments made to employees under share-based arrangements from which tax is withheld and paid to the Revenue in cash are accounted for as equity settled share-based payments with the impact of these payments on cash balances disclosed separately.

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

Performance-related payments

As part of the arrangements for the internalisation of the Investment Manager in 2015, it was agreed that any future performance fees and other payments due under the terms of the Investment Management Agreement ("IMA"), would be calculated as under the IMA for each financial year and settled mainly in shares of the Company until the expiry of the agreement on 26 November 2018. It was agreed that up to 15% of any performance fees would be set aside for the payment of cash bonuses and deferred share-based payments (see part b below) to employees. This was agreed within the Share Purchase Agreement ("SPA") which was signed on 23 September 2015 and approved by shareholders at an EGM on 27 October 2015. As all parties had a shared understanding of the terms and conditions of the arrangement and approval was obtained on 27 October 2015, the grant date is determined to be this date for payments made under this arrangement.

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

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

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

The Board has considered how best to calculate any performance fees and other related payments for the final period of the IMA from 1 April 2018 to 26 November 2018. Since the IPD Ireland Index, which is used in the calculation of any relative performance fees, reports on a quarterly basis, the Board has determined that it is most appropriate to measure the Company's performance to 31 December 2018, being the nearest quarter end, and to pro-rate any performance fees due for the fact that the final IMA period expires on 26 November 2018. Any performance fees due will be paid primarily in shares (subject to the standard lock-up provisions) which will issue only once the audit of the accounts for the year ended 31 March 2019 is completed.

The Directors have estimated the amount of fees that would be payable under this arrangement for the period ended 30 September 2018 in preparing these condensed consolidated financial statements and these are shown in the table below split between performance-related payments, "top-up" internalisation expenses and employee share-based payment reserves (see also part b).

Summary of performance-related payments

 

Six months ended 30 September 2018

Unaudited

 

Six months ended

30 September 2017

 Unaudited

 

Financial year ended 31 March 2018

 Audited

 €'000

 

 €'000

 

 €'000

Performance-related payments for the period

2,841

 

2,179

6,599

"Top-up" internalisation expenses (note 8)

1,113

 

890

 

1,743

Total

3,954

 

3,069

 

8,342

Of which are:

 

 

 

 

 

 

 

 

 

 

 

Payable to Vendors (share-based see below)

3,528

 

2,541

 

7,352

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

426

 

5281

 

990

Total

3,954

 

3,069

 

8,342

1Sepember 2017 included a provision of €237k re non-IMA shares estimated for the period

Approximately €0.2m of the above total performance payment of €4.0m accrued would be expected to be paid in cash bonuses to staff, the balance of €3.8m would be payable in shares to staff and vendors.

Shares issued relating to performance-related payments to Vendors are subject to lock-up provisions meaning they are restricted from being sold upon receipt, with one-third of the shares being "unlocked" on each anniversary of the issue date. All shares issued to vendor recipients are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them. Employees who receive deferred share awards under these arrangements are paid the dividends accruing during the period prior to vesting through payroll.

Share-based performance-related payments during the period

Summary of share-based payments outstanding as at 30 September 2018 (Unaudited)

 

Payment provided at start of period

Paid/ adjustments during period

Provided during period

Balance outstanding at end of period

 

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

a) Performance-related payments

7,332

5,079

(7,332 )

(5,079 )

3,528

2,484

3,528

2,484

b) Employee long-term incentive plan - IMA portion

1,373

1,044

(468)

(367 )

426

 300

1,331

977

c) Employee long-term incentive plan - interim arrangements

78

60

 -

 -

92

67

170

127

 

8,783

6,183

(7,800)

(5,446 )

4,046

2,851

5,029

3,588

 

 

 

 

 

 

 

 

 

 

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

 

Payment provided at start of financial year

Paid during financial year

Provided during financial year1

Balance outstanding at end of financial year

 

 

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 €'000

'000 Shares

 

a) Performance-related payments

8,586

6,895

(8,586)

(6,895)

7,332

5,079

7,332

5,079

 

b) Employee long-term incentive plan - IMA portion

881

708

 -

 -

492

336

1,373

1,044

 

c) Employee long-term incentive plan - interim arrangements

 -

 -

 -

 -

78

60

78

60

 

 

9,467

7,603

(8,586 )

(6,895)

7,902

5,475

8,783

6,183

 

 

 

 

 

 

 

 

 

 

 

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

a) Performance-related payments - "Vendor" payments

30 September 2018

Grant date: 27 October 2015

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

 

 

Six months ended

 30 September 2018

Unaudited

 

Six months ended

30 September 2017

Unaudited

 

Share price

€ '000

 

Number of shares '000

 

€ '000

 

Number of shares '000

 

 

 

 

 

 

 

 

 

Opening balance at start of period

1.444

7,332

 

5,079

 

8,586

 

6,895

Payment made during the period

 

(7,332 )

 

(5,079)

 

(8,856)

 

(6,895)

Amounts provided during the period

 

3,954

 

 

 

3,069

 

 

Less: payable to employees (b below)

 

 (426)

 

 

 

(326 )

 

 

Share based payment due to vendors

 

3,528

 

2,484

 

2,743

 

1,858

 

 

 

 

 

 

 

 

 

Closing balance at end of period

1.420

3,528

 

2,484

 

2,743

 

1,858

 

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

 

31 March 2018

Grant date: 27 October 2015

Measurement date: 31 March 2018

 

 

Financial year ended

31 March 2018

Audited

 

Financial year ended

31 March 2017

Audited

 

Share price

€ '000

 

Number of shares '000

 

€ '000

 

Number of shares '000

 

 

 

 

 

 

 

 

 

Opening balance at start of financial year

1.245

8,586

 

6,895

 

5,469

 

4,200

Payment made during the financial year

 

(8,586)

 

(6,895)

 

(5,469)

 

(4,200)

Amounts provided during the financial year

 

8,322

 

 

 

9,472

 

 

Less: payable to employees b)

 

(990)

 

 

 

(886)

 

 

Share-based payment due to Vendors

7,332

 

5,079

 

8,586

 

6,895

 

 

 

 

 

 

 

 

 

Closing balance at end of financial year

 1.444

7,332

 

5,079

 

8,586

 

6,895

 

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

b) Employee long-term incentive plan - IMA portion

Awards may be granted to employees of the Group under a remuneration plan which includes both cash elements and share-based long-term incentive payments (the "Performance-Related Remuneration Scheme" or "PRR"). Until the expiry of the performance-related payments referenced in part a) above on 26 November 2018, the PRR will be funded principally by deductions of up to 15% from any performance fees included in these performance-related payments. Shares awarded under the PRR, approximately 50% of the total award or up to 7.5% of the performance fee element of the performance-related payments at a) above, are in the form of a contingent award of Company shares which will issue at the time of vesting, which occurs on the third anniversary of the start of the year to which they relate. These shares are a part of the payments outlined at part a) above and the grant and measurement dates are determined on the same basis. The number of shares is calculated based on the average closing price for the 20 business days preceding the end of the period to which the award relates. These shares are recorded at fair value on the measurement date, i.e. the 31 March of the year to which they are earned. The charge recognised in the condensed consolidated income statement for the period ended 30 September 2018 is €0.4m (31 March 2018: €0.5m). During this period, 346k shares vested under this arrangement. 163k shares were issued valued at €0.20m. The balance, 183k shares equivalent, were paid to Revenue in cash on the employees' behalf through normal payroll. €0.23m, was released from the share-based payment reserve relating to these shares which were valued at €0.26m at the assessment date. The difference between the IFRS 2 value based on measurement date and the fair value at vesting date of €17k has been charged to staff costs in this period.

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

Employee long-term incentive plan - IMA portion

Grant date: 27 October 2015

Measurement date: The interim arrangements expire on 26 November 2018 as described above. The final payment for performance-related payments under this arrangement will be measured at 31 December 2018 and paid on a pro-rated basis to 26 November 2018.

30 September 2018

 

 

Period ended

30 September 2018

Unaudited

 

Period ended

30 September 2017

Unaudited

 

 

Share price

€ '000

 

Number of shares '000

 

€ '000

 

`Number of shares '000

 

 

 

 

 

 

 

 

 

Opening balance at start of period

1.444

1,373

 

1,044

 

881

 

708

 

 

 

 

 

 

 

 

 

Amounts provided during the period*

 

426

 

300

 

401

 

 137

Shares issued during the period

 

(214 )

 

(163 )

 

 -

 

 -

Amounts paid in cash during the period

 

(236 )

 

(183 )

 

 -

 

 -

Adjustments to provisions

 

(18 )

 

(21 )

 

 -

 

 -

Share based element this period

 

(42)

 

(67 )

 

401

 

 137

 

 

 

 

 

 

 

 

 

Closing balance at end of period

1.420

1,331

 

977

 

1,282

 

845

          

 

31 March 2018

 

 

Financial year ended

 31 March 2018

Audited

 

Financial year ended 31 March 2017

Audited

 

Share price

€ '000

 

 

 

Number of shares '000

 

€ '000

 

 

 

Number of shares '000

 

 

 

 

 

 

 

 

 

Opening balance at start of financial year

1.245

881

 

708

 

456

 

350

Amounts provided during the year *

 

990

 

 

870

 

Of which is payable in cash

 

(498)

 

 

(445)

 

 

Share-based element this year

 

492

 

336

 

425

 

358

 

 

 

 

 

 

 

 

 

Closing balance at end of financial year

1.444

1,373

 

1,044

 

881

 

708

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

c) Employee long-term incentive plan - interim arrangements

Employees who fall outside of the arrangements at b. above, i.e. those who provide services that were not part of the IMA arrangements, e.g. new staff including building management and development staff, are also paid bonuses on a similar basis to those paid to the employees qualifying at b. above. Until the expiry of the IMA and the introduction of the new remuneration arrangements, these arrangements are approved by the Board each year. Shares granted to these employees are determined to have a grant date of the date of approval by the Board of these awards. These shares vest two years after the end of the financial year to which they relate. Employees who leave before the vesting date will lose entitlement to these shares. These amounts are amortised over the vesting period by reference to the fair value of the shares granted and after appropriate consideration of the potential impact of employee departures. Due to the low level of employee turnover in the Group to date, the fact that the relevant employees have mainly joined within the 18 months, and the likely immaterial amounts involved, the Directors have made no amendment to the amount provided for expected forfeiture of shares due to departures. When these shares vest they are assessed for tax purposes at the current market share price.

Employee long-term incentive plan - Interim arrangements

30 September 2018

Grant date of shares awarded during this period:

30 September 2018

Grant date: 31 July 2018

 

 

Period ended

 30 September 2018

Unaudited

 

Period ended

30 September 2017 Unaudited

 

 

€ '000

 

Number of shares '000

 

€ '000

 

`Number of shares '000

 

 

 

 

 

 

 

 

 

Opening balance at start of period

 

78

 

60

 

 -

 

 -

Payment made during the period

 

 -

 

 -

 

 -

 

 -

Amounts provided during the period

 

92

 

67

 

-

 

-

 

 

 

 

 

 

 

 

 

Closing balance at end of period

 

170

 

127

 

-

 

-

*At grant date

 

Total shares awarded at the grant date 31 July 2018 were 0.1m. These vest on 31 March 2020.

 

31 March 2018

Grant date: 24 May 2017

 

 

Financial year ended

 31 March 2018

Audited

 

Financial year ended

 31 March 2017

Audited

 

 

€ '000

 

Number of shares '000

 

€ '000

 

`Number of shares '000

 

 

 

 

 

 

 

 

 

Opening balance at start of financial year

 

 -

 

 -

 

 -

 

 -

Payment made during the financial year

 

 -

 

 -

 

 -

 

 -

Amounts provided during the financial year

 

78

 

60

 

 -

 

 

 

 

 

 

 

 

 

 

 

Closing balance at end of financial year

 

78

 

60

 

 -

 

 -

 

 

 

 

10. Dividends

Accounting policy

See note 14 Annual Report 2018

 

 

Six months ended

30 September 2018 Unaudited

Six months ended

30 September 2017 Unaudited

 

 

€'000

€'000

Interim dividend declared for the period ended 30 September 2018 of 1.5 cent per share (30 September 2017: 1.1 cent per share)

 

10,464

7,616

Final dividend paid for the financial year ended 31 March 2018 of 1.9 cent per share (31 March 2017: 1.45 cent per share)

 

13,254

10,040

 

Under the REIT regime, the Company is required to distribute a minimum of 85% of the Group's property rental business income on an annual basis. The total dividend for the year ended 31 March 2018 was 3.0 cent per share. The Company's policy with respect to the interim dividend is to distribute 30-50% of the total regular dividends paid in respect of the prior year. The Board has therefore declared an interim dividend of 1.5 cent per share (30 September 2017: 1.1 cent per share). This dividend is expected to be paid to shareholders on 24 January 2019. All of this proposed interim dividend of 1.5 cent per share will be a Property Income Distribution ("PID") in respect of the Group's property rental business as defined in the Irish REIT legislation.

11. Earnings per share

There are no convertible instruments, options, or warrants on Ordinary Shares in issue as at 30 September 2018. However, the Company has established a reserve of €5.0m (31 March 2018: €8.8m) which is mainly for the issue of Ordinary Shares relating to the payment of performance related payments. It is estimated that approximately 3.7m Ordinary Shares (31 March 2018: 6.6m shares) will be issued in total, 3.6m of which are provided for at 30 September 2018 and a further 0.1m which will be recognised over the next two years. Details on share-based payments are set out in note 9. The dilutive effect of these shares is disclosed below.

The calculations are as follows:

Weighted average number of shares

 

Six months ended 30 September 2018 Unaudited

 

Six months ended

30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

 '000

 

 '000

 

 '000

Issued share capital at start of period

692,347

 

685,452

 

685,452

Shares issued during the period

 

5,242

 

6,895

 

6,895

 

 

 

 

 

 

 

Shares in issue at end at period end

697,589

 

692,347

 

692,347

 

 

 

 

 

 

 

Weighted average number of shares

 

694,968

 

688,900

 

688,900

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

3,727

 

2,702

 

6,599

Diluted number of shares

 

698,695

 

691,602

 

695,499

 

 

The estimated additional shares are calculated as follows:

 

Six months ended 30 September 2018 Unaudited

 

Six months ended 30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

'000

 

'000

 

'000

Share based payments due at the period end (note 9)

 

3,588

 

2,702

 

6,183

Awards not yet recognised

 

139

 

 -

 

416

 

 

 

 

 

 

 

 

 

3,727

 

2,702

 

6,599

 

 

Basic and diluted earnings per share (IFRS)

 

Six months ended 30 September 2018 Unaudited

 

Six months ended 30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

 €'000

 

 €'000

 

 €'000

 

 

 

 

 

 

 

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

63,960

 

70,604

 

107,101

 

 

 

 

 

 

 

 

 

 '000

 

 '000

 

 '000

Weighted average number of ordinary shares (basic)

694,968

 

688,900

 

688,900

Weighted average number of ordinary shares (diluted)

698,695

 

691,602

 

695,499

 

 

 

 

 

 

 

Basic earnings per share (cents)

 

9.2

 

10.2

 

15.5

Diluted earnings per share (cents)

 

9.2

 

10.2

 

15.4

 

EPRA earnings per share and Diluted EPRA earnings per share1

Six months ended 30 September 2018 Unaudited

 

Six months ended 30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

€ '000

 

€ '000

 

€ '000

 

 

 

 

 

 

 

Profit for the period attributable to the owners of the Company 

63,960

 

70,604

 

107,101

Exclude:

 

 

 

 

 

 

Gains and losses on investment property

 

(51,131 )

 

(61,626 )

 

(87,802 )

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

 

 -

 

1

 

 -

Fair value of derivatives

 

20

 

45

 

104

 

 

 

 

 

 

 

EPRA earnings

 

12,849

 

9,024

 

19,403

 

 

 '000

 

 '000

 

 '000

Weighted average number of ordinary shares (basic)

694,968

 

688,900

 

688,900

Weighted average number of ordinary shares (diluted)

698,695

 

691,602

 

695,499

EPRA earnings per share (cent)

 

1.8

 

1.3

 

2.8

Diluted EPRA earnings per share (cent)

 

1.8

 

1.3

 

2.8

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

 

12. IFRS and EPRA NAV per share

Accounting policy

See note 16 of the Annual Report 2018.

 

 

 30 September 2018 Unaudited

 

31 March 2018 Audited

 

Note

 €'000

 

 €'000

IFRS net assets at end of period

 

1,166,266

 

1,111,730

 

 

 

 

 

Ordinary Shares in issue at end of period

 

697,589

 

692,347

 

 

 

 

 

IFRS NAV per share (cents)

 

167.2

 

160.6

 

 

 

 

 

Ordinary Shares in issue

 

697,589

 

692,347

Estimated additional shares for performance-related payments

11

3,727

 

6,599

Diluted number of shares

 

701,316

 

698,946

 

 

 

 

 

Diluted IFRS NAV per share (cents)

 

166.3

 

159.1

 

 

 

 

 

 

 

 30 September 2018 Unaudited

 

31 March 2018 Audited

 

 

 €'000

 

 €'000

IFRS net assets at end of period

 

1,166,266

 

1,111,730

Net mark to market on financial assets

 

276

 

345

EPRA NAV

 

1,166,542

 

1,112,075

 

 

 

 

 

EPRA NAV per share (cents)

 

166.3

 

159.1

 

The Company has established a reserve of €5.0m (31 March 2018: €8.8m) against the issue of approximately 3.6m Ordinary Shares relating to shares due to issue for payments due to the Vendors of the Investment Manager and employees as detailed in note 9.

 

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.

13.  Investment property

Accounting policy

See note 17 of the Annual Report 2018.

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

At 30 September 2018

Unaudited

 

 

 

 

Office assets

Office development assets

 

Residential assets

 

Industrial assets

 

 

Total

Fair value category

 

Level 3

Level 3

Level 3

Level 3

Level 3

 

 

 €'000

 €'000

 €'000

 €'000

 €'000

Carrying value at 31 March 2017

 

869,748

168,042

116,429

13,168

1,167,387

Additions:

 

 

 

 

 

 

Property purchases

 

32,075

 -

923

6,160

39,158

Development and refurbishment expenditure

 

12,250

36,953

815

167

50,185

Revaluations included in income statement

 

29,875

38,405

14,792

(1,695 )

81,377

Disposals:

 

 

 

 

 

 

Sales

 

(26,990 )

 -

(2,400 )

 -

(29,390 )

Transferred between segments

 

100,979

(108,900 )

7,921

 -

 -

 

 

 

 

 

 

 

Carrying value at 31 March 2018

 

1,017,937

134,500

138,480

17,800

1,308,717

Additions:

 

 

 

 

 

 

Property purchases

 

2,961

 -

625

6,838

10,424

Development and refurbishment expenditure

 

3,445

20,268

2

94

23,809

Revaluations included in income statement

 

21,862

18,432

9,072

(632 )

48,734

Disposals:

 

 

 

 

 

 

Sales

 

(61,759 )

 -

 -

 -

(61,759 )

 

 

 

 

 

 

 

Carrying value at 30 September 2018

 

984,446

173,200

148,179

24,100

1,329,925

 

The valuations used to determine fair value for the investment properties in the consolidated financial statements are determined by C&W, the Group's independent valuer and are in accordance with the provisions of IFRS 13. C&W has agreed to the use of their valuations for this purpose. Some of the inputs to the valuations are defined as "unobservable" by IFRS 13. As discussed in note 2(f) to the condensed consolidated financial statements, property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer. For these reasons, and consistent with EPRA's guidance, the Group has classified the valuations of its property portfolio as Level 3 as defined by IFRS 13. Valuations are completed on the Group's investment property on at least a half-yearly basis and, in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). This takes account of the properties' highest and best use. Where the highest and best use is not the current use, the valuation will account for the costs and likelihood of achieving this use in arriving at a valuation estimate for that property. In the period to 30 September 2018, for most properties the highest and best use is the current use except as discussed in note 2(f). In these instances, the Group may need to achieve vacant possession before re-development or refurbishment may take place and the valuation of the property takes account of any remaining occupancy period on existing leases. The table below summarises the approach for each investment property segment and highlights properties where the approach has been varied.

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

In valuing the Group's investment properties, the Directors have applied a reduction of €6.3m (31 March 2018: €6.8m) to the valuers' 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.

There were no transfers between fair value levels during the period. Approximately €0.2m of financing costs were capitalised in relation to the Group's developments and refurbishments (31 March 2018: €2.0m). No other operating expenses were capitalised during the financial year.

The following table illustrates the methods applied to each segment:

 

Description of investment property asset class

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

Narrative description of the techniques used

 

Changes in the fair value technique during the period

Office assets

984

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 in December 2022 and on a residual basis thereafter at 30 September 2018. The present value of the residual land value was added to the investment value of the existing income.

 

No change in valuation technique.

 

Office development assets

173

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

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

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

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

For developments close to completion the yield methodology is applied.

 

No change in valuation technique.

However: the method was changed during the period for the following property:

- 2WML, which is nearing completion, has been valued on an investment basis using market rental values capitalised with a market capitalisation rate, from which remaining capital expenditure has been deducted.

 

Residential assets

148

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

 

No change in valuation technique.

Industrial assets

24

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

The Gateway site, including adjacent lands, is valued as a development site on a price per acre basis.

 

No change in valuation technique.

 

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

 

As at 30 September 2018 Unaudited

 

As at 31 March 2018 Audited

 

€'000

 

€'000

Valuation per valuers' certificate

1,341,330

 

1,320,581

Owner occupied (Note 14)

(5,076 )

 

(5,029 )

Income recognition adjustment1

 

(6,329 )

 

 

(6,835 )

 

 

 

 

Investment property balance at the period end

1,329,925

 

1,308,717

 

1Income recognition adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cashflow based approach while income recognition for accounting purposes spreads the costs of tenant incentives and lease set up over the lease term.

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

The valuation techniques used in determining the fair value for each of the categories of assets is market value as defined by VPS4 of the Red Book 2017, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, and is in accordance with IFRS 13. Included in the inputs for the valuations above are future development costs where applicable. These development costs are generally determined by tender at the outset of the project and 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 valuers assessment of market capitalisation rates and are therefore Level 3 inputs.

The table below summarises the key unobservable inputs used in the valuation of the Group's investment properties at 30 September 2018. There are interrelationships between these inputs as they are both determined by market conditions and the valuation result in any one period depends on the balance between them. The Group's residential properties are mainly multi-family units and therefore ERVs are based on current market rents observed for units rented within the property. ERV is included in the below table for completeness.

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

30 September 2018

Unaudited

 

Market Value

 Estimated rental value € per sq. ft.

Equivalent Yield %

 

€ '000

 Low

 High

Low

High

Office

984,446

€15.00psf

 €60.00psf

4.40%

7.02%

Office development

173,200

€30.00psf

€57.50 psf

4.54%

5.24%

Residential *

148,179

€22,800pa

€ 31,800 pa

5.11%

6.00%

Industrial

24,100

€5.25 psf

€5.25 psf

8.37%

8.37%

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

31 March 2018

Audited

 

Market value

 Estimated rental value € per sq. ft.

Equivalent yield %

 

€ '000

 Low

 High

Low

High

Office

1,017,937

€20.00psf

 €60.00psf

4.56%

7.17%

Office development

134,500

€30.00 psf

€58.00 psf

4.75%

5.25%

Residential *

138,480

€19,800 pa

€ 31,800 pa

5.20%

6.43%

Industrial

17,800

€5.5 psf

€5.5 psf

7.45%

7.45%

* Average ERV based on a two-bedroom apartment

The sensitivities below illustrate the impact of movements in key unobservable inputs on the fair value of investment properties. To calculate these impacts only the movement in one unobservable input is changed as if there is no impact on the other. In reality there may be some impact on yields from an ERV shift and vice versa. However, this gives an assessment of the maximum impact of shifts in each variable. If rents in the market are assumed to move 5% from those estimated at 31 March 2018, the Group's investment property portfolio would increase or decrease in value by approximately €65m (31 March 2018: €60m). A 25bp increase in equivalent yields would decrease the value of the portfolio by €73m (31 March 2018: €69m) and a 25bp decrease results in an increase in value of €82m (31 March 2018: €78m).

30 September 2018

Unaudited

Sensitivities

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

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

 

Increase € 'm

Decrease €'m

Increase € 'm

Decrease €'m

Office

46.2

(47.6 )

(54.9 )

58.9

Office development

11.3

(11.1 )

(11.8 )

13.2

Residential

7.3

(7.3 )

(5.8 )

9.3

Industrial

0.1

(0.1 )

(0.1 )

0.1

Total

64.9

(66.1 )

(72.6 )

81.5

31 March 2018

Audited

Sensitivities

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

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

 

Increase € 'm

Decrease €'m

Increase € 'm

Decrease €'m

Office

42.2

(42.2)

(52.5)

59.6

Office development

10.0

(10.0)

(10.4)

11.7

Residential

7.0

(6.9)

(5.7)

6.3

Industrial

0.5

(0.6)

(0.4)

0.4

Total

59.7

(59.7)

(69.0)

78.0

 

14. Property, plant and equipment

Accounting policy

See note 18 to the Annual Report 2018

At 30 September 2018

Unaudited

 

 

 

Land and buildings

 

 

Office and computer equipment

 

Leasehold improvements and fixtures and fittings

 

 

 

 

Total

 

 €'000

 

 €'000

 

 €'000

 

 €'000

Cost or valuation

 

 

 

 

 

 

 

At 1 April 2018

5,219

 

161

 

590

 

5,970

Additions

 -

 

16

 

33

 

49

Revaluation recognised in other comprehensive income

 

100

 

 

 -

 

 

 -

 

 

100

At 30 September 2018

5,319

 

177

 

623

 

6,119

Depreciation

 

 

 

 

 

 

 

At 1 April 2018

(190 )

 

(104 )

 

(265 )

 

(559 )

Charge for the period

(53 )

 

(26 )

 

(71 )

 

(150 )

At 30 September 2018

(243 )

 

(130 )

 

(336 )

 

(709)

Net book value at 30 September 2018

 

5,076

 

 

47

 

 

287

 

 

5,410

 

At 31 March 2018

Audited

 

 

 

Land and buildings

 

 

Office and computer equipment

 

Leasehold improvements and fixtures and fittings

 

 

 

 

Total

 

 €'000

 

 €'000

 

 €'000

 

 €'000

Cost or valuation

 

 

 

 

 

 

 

At 1 April 2017

4,562

 

96

 

417

 

5,075

Additions

 -

 

65

 

173

 

238

Revaluation recognised in other comprehensive income

 

657

 

 

-

 

 

 -

 

 

657

At 31 March 2018

5,219

 

161

 

590

 

5,970

Depreciation

 

 

 

 

 

 

 

At 1 April 2017

(89)

 

(40)

 

(145)

 

(274)

Charge for the year

(101)

 

(64)

 

(120)

 

(285)

At 31 March 2018

(190)

 

(104)

 

(265)

 

(559)

 

 

 

 

 

 

 

 

Net book value at 31 March 2018

5,029

 

57

 

325

 

5,411

 

Land and buildings, 54% of South Dock House, was revalued at 30 September 2018 and at 31 March 2018 by the Group's independent valuer and in accordance with the valuation approach described under note 13. It was measured at fair value at the period end using a yield methodology using market rental values capitalised with a market capitalisation rate. These fair value measurements use significant unobservable inputs. The inputs used are disclosed in the table below.

 

Valuation inputs

 

30 September 2018

 

31 March 2018

ERV per sq. ft.

 

€52.50

 

€52.50

Equivalent yield

 

5.0%

 

5.0%

 

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.

Financial instruments

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

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

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

- those to be measured subsequently at fair value (either through OCI or through profit or loss); and

- those to be measured subsequently at amortised cost

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

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

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

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

15. Cash and cash equivalents

 

 

 30 September 2018 Unaudited

 

31 March 2018

 Audited

 

 

 €'000

 

 €'000

Cash and cash equivalents

 

54,316

 

22,521

 

Cash and cash equivalents includes cash at banks in current accounts, deposits held on call with banks and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. The management of cash and cash equivalents is discussed in detail in note 25. Please also refer to note 21 on the net debt calculations. The Group held additional funds at the period end after a recent asset sale which was held to purchase additional lands discussed in note 29. In addition, the Company holds funds in excess of its regulatory minimum capital requirement at all times.

16. Other financial assets

Accounting policy

Loans and receivables: loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans are initially recorded at fair value plus transaction costs. The Group holds loans as a means of acquiring the underlying collateral. The Group will only collect the loan balances outstanding on realisation of the underlying collateral. Therefore, the Group loans are carried at FVTPL.

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

 

 

 

 30 September 2018 Unaudited

 

31 March 2018

 Audited

 

 

 €'000

 

 €'000

Cashflow hedges

 

21

 

88

Loans carried at amortised cost

 

-

 

152

Loans carried at fair value through profit or loss

152

 

-

 

 

173

 

240

 

Cashflow hedges are the Group's hedging instruments on its borrowings. The Group has hedged up to €244m of its revolving credit facility (31 March 2018: €244m) using a combination of caps and swaptions to limit the EURIBOR element of interest payable to 1%.

Loans carried at fair value through profit or loss consist of one loan. This loan was acquired by the Group as part of a portfolio of loans which were settled by the sale of collateral. It was reclassified from "carried at amortised costs" to "carried at through FVPL" on 1 April 2018 as part of the implementation of IFRS 9. There was no impact on retained earnings as a result of this reclassification. This loan was credit impaired at initial recognition. No contractual cashflows are collectable on this loan - it was settled by the sale of the underlying collateral after the period end and its fair value is calculated by reference to this settlement.

17. Trade and other receivables

Accounting policy

 Trade receivables are initially recognised when they are originated and measured at fair value plus transaction costs that are directly attributable to the item. Subsequently these are measured at measured at amortised cost using the effective interest rate method. Financial assets that are trade receivables are assessed under the simplified credit loss approach as they do not contain a significant financing component.

See Section 4 policy discussion for further information on trade and other receivables that are also financial assets.

 

 

 

 30 September 2018 Unaudited

 

31 March 2018 Audited

 

 

 €'000

 

 €'000

Non-current

 

 

 

 

Property income receivables

 

5,480

 

5,681

Other receivables

 

2,512

 

2,106

Balance - non-current

7,992

 

7,787

Current

 

 

 

 

Prepaid remuneration (1)

 

457

 

2,679

Property income receivables

 

1,336

 

2,885

Other receivables

 

425

 

416

Prepayments

 

463

 

1,077

Income tax refund due

 

90

 

102

VAT refundable

 

 -

 

80

Balance - current

2,771

 

7,239

Balance - total

10,763

 

15,026

Of which classified as financial assets

1,247

 

2,092

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

There are no amounts past due. The non-current balance is mainly non-financial in nature; €0.5m (31 March 2018: €0.5m) relates to amounts receivable from a tenant in relation to capital expenditure with the balance consisting of deferred income and expenditure amounts relating to the lease incentives and deferred lease costs. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (note 25).

Trade receivables that are financial assets 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. Balances at 31 March 2018 were assessed during the implementation of IFRS 9 (note 3). There is no material provision for lifetime expected credit losses required either at 30 September 2018 or 1 April 2018.

 

18. Issued capital and share premium

Accounting policy

See note 23 of the Annual Report 2018.

 

30 September 2018

Unaudited

31 March 2018

Audited

 

No. of shares in issue

 

Share Capital

 

Share Premium

 

Total

No. of shares in issue

 

Share Capital

 

Share Premium

 

Total

 

'000

 

€'000

 

€'000

 

€'000

'000

 

€'000

 

€'000

 

€'000

Balance at beginning of the period

 

692,347

 

 

69,235

 

 

617,461

 

 

686,696

 

685,452

 

 

68,545

 

 

609,565

 

 

678,110

Shares issued during the period

 

5,242

 

524

 

7,022

 

7,546

 

6,895

 

 

690

 

 

7,896

 

 

8,586

Balance at end of the period

 

697,589

 

 

69,759

 

 

624,483

 

 

694,242

 

692,347

 

 

69,235

 

 

617,461

 

 

686,696

 

Shares issued during the period are as follows:

5,241,805 Ordinary Shares with a nominal value of €0.10 were issued during the period in settlement of share-based payments totalling €7.5m (note 9).

162,996 shares were issued on 9 April 2018 and 5,078,809 shares were issued on 20 July 2018 and the associated costs were €14k.

Share capital

Ordinary Shares of 10 cents each:

 

 

30 September 2018

Unaudited

 

31 March 2018

Audited

 

 

No of shares '000

 

No of shares '000

Authorised

 

1,000,000

 

1,000,000

Allotted, called up and fully paid

 

 

697,589

 

 

692,347

In issue at end of financial period

697,589

 

692,347

 

There are no shares issued which are not fully paid.

Under the terms of the agreement under which the Group internalised the Investment Manager, the Vendors are entitled to certain deferred contingent payments which are, for the most part, equivalent to the performance fees which would have been due under the Investment Management Agreement. These and other share-based payments due at 30 September 2018 amounted to €5.0m at the period end (31 March 2018: €8.8m) and are all payable in shares (note 9). A further 3.6m shares are expected to be issued in relation to these payments.

19. Other reserves

 

 

 30 September 2018 Unaudited

 

31 March 2018

Audited

 

 

 €'000

 

 €'000

Property revaluation

 

1,266

 

1,166

Cash flow hedging

 

(377 )

 

(329 )

Other reserves

 

5,029

 

8,783

 

 

 

 

 

Balance at end of period

 

5,918

 

9,620

 

a. Property revaluation reserve

 

 

 30 September 2018 Unaudited

 

31 March 2018

 Audited

 

 

 €'000

 

 €'000

Balance at start of period

 

1,166

 

509

Increase arising on revaluation of property

 

100

 

657

 

 

 

 

 

Balance at end of period

 

1,266

 

1,166

 

The Group's headquarters are carried at fair value and the remeasurement of this property is made through other comprehensive income or loss (note 14). If disposed, the property revaluation reserve relating to the premises sold will be transferred directly to retained earnings.

b. Cashflow hedging reserve

 

 

 30 September 2018 Unaudited

 

31 March 2018

Audited

 

 

 €'000

 

 €'000

Balance at start of period

 

(329 )

 

(217 )

Released to profit and loss

 

10

 

58

(Loss) arising on fair value of hedging

 

(58 )

 

(170 )

 

 

 

 

 

Balance at end of period

 

(377 )

 

(329 )

 

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

No income tax arises on this item.

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

 

 

 30 September 2018 Unaudited

 

31 March 2018 Audited

 

 

 €'000

 

 €'000

Finance expense

 

20

 

104

 

c. Share-based payment reserve

 

 

 30 September 2018 Unaudited

 

31 March 2018 Audited

 

 

 €'000

 

 €'000

 

 

 

 

 

Balance at start of period

 

8,783

 

9,467

Performance related payments provided

 

3,792

 

7,902

Shares issued during the period

 

(7,546)

 

(8,586 )

 

 

 

 

 

Balance at end of period

 

5,029

 

8,783

 

The share-based payment reserve comprises amounts reserved for the issue of shares in respect of performance-related and other payments. These are discussed further in note 9.

20. Retained earnings and dividends on equity instruments

 

 

 30 September 2018 Unaudited

 

31 March 2018

Audited

 

 

 €'000

 

 €'000

Balance at start of period

 

415,414

 

325,983

Profit for the period

 

63,960

 

107,101

Share issuance costs

 

(14 )

 

(14 )

Dividends paid

 

(13,254 )

 

(17,656 )

 

 

 

 

 

Balance at end of period

 

466,106

 

415,414

 

In August 2018, a dividend of 1.9 cent per share (total dividend €13.3m) was paid to the holders of fully paid Ordinary Shares.

The Directors have approved an interim dividend of 1.5 cent per share (an estimated €10.5m) to be paid to shareholders on 24 January 2019.

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

21. Financial liabilities

Accounting policy

Financial liabilities are initially recognised at the fair value of the consideration received less directly attributable transaction costs. Subsequent to initial recognition, financial liabilities are recognised at amortised cost using the effective interest rate method. These may be further analysed between current and non-current depending on whether there is an unrestricted right to defer payment for 12 months after the balance sheet date or beyond. Financial liabilities are derecognised in full when the Group is discharged from its obligation, they expire, or they are replaced by a new liability with substantially modified terms.

 

 

 30 September 2018 Unaudited

 

31 March 2018

 Audited

 

 

 €'000

 

 €'000

 

 

 

 

 

Balance at start of period

 

219,218

 

171,138

Bank finance drawn during the period

 

22,500

 

86,454

Bank finance repaid during period

 

(30,000)

 

(39,674)

Interest payable

 

458

 

1,300

 

 

 

 

 

Balance at end of period

 

212,176

 

219,218

The maturity of non-current borrowings is as follows:

 

 

 

Current - Less than 1 year

 

907

 

809

Non-current - Between 2 and 5 years

 

211,269

 

218,409

 

 

 

 

 

Total

 

212,176

 

219,218

 

The Group seeks to leverage its equity capital to achieve higher returns within agreed limits. The Group has a stated policy of not incurring debt above 40% of the market value of its property assets. Under the Irish REIT rules the loan-to-value ("LTV") ratio must remain under 50%.

The Group has a €400m revolving credit facility ("RCF") with Bank of Ireland, Barclays Bank plc and NatWest which has a five-year term to November 2020. The RCF is secured against a floating charge over the Group's assets. Where debt is drawn to finance material refurbishments and developments 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 into the effective interest rate. The Directors confirm that all covenants have been complied with and are kept under review.

All borrowings are denominated in Euro. All borrowings are subject to six months or less interest rate changes and contractual re-pricing rates. In addition, the Group has entered into derivative instruments so that the majority of its EURIBOR exposure is capped at 1% in accordance with the Group's hedging policy (note 25).

Net debt and LTV

 

 

 30 September 2018

Unaudited

 

31 March 2018

Audited

 

 

 €'000

 

 €'000

Financial liabilities

 

212,176

 

219,218

Arrangement fees

 

1,603

 

1,963

Accrued interest payable

 

(907 )

 

(809 )

Cash and cash equivalents

 

(54,316 )

 

(22,521 )

Amounts held for sinking funds and other deposits

5,390

 

4,831

 

 

 

 

 

Net debt at period end

 

163,946

 

202,682

 

 

 

 

 

Investment Property at period end

 

1,329,925

 

1,308,717

 

 

 

 

 

Loan to value ratio

 

12.3%

 

15.5%

 

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.

 

22. Trade and other payables

Accounting policy

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

 

 

 30 September 2018 Unaudited

 

31 March 2018 Audited

 

 

 €'000

 

 €'000

Current

 

 

 

 

Investment property costs payable

 

6,682

 

5,118

Rent prepaid

 

8,560

 

7,313

Rent deposits and other amounts due to tenants

 

1,269

 

 

1,569

Sinking fund balances

 

1,911

 

2,053

Trade and other payables

 

1,747

 

3,540

PAYE/PRSI payable

 

225

 

163

 

 

 

 

 

Balance at end of period - total

20,394

 

19,756

Of which classified as financial liabilities

3,959

 

1,369

 

Cash is held against balances due for service charges prepaid and sinking fund contributions, €4.2m (31 March 2018: €3.6m), and rental deposits from tenants, €1.2m (31 March 2018: €1.2m). Sinking funds are monies put aside from annual service charges collected from tenants as contributions towards expenditure on larger maintenance items that occur at irregular intervals in buildings managed by Hibernia. Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of the of trade and other payables approximates to their fair value.

23. Contract liabilities

Accounting policy

Contract liabilities arise as a result of service charge contracts, the accounting for which is discussed in Note 6 above.

Contract liabilities arise from service charge payables. Service charge arrangements form a single performance obligation under which the Group purchases services for multi-let buildings and recharges them to tenants. The movements for the purchase of services and income relating to these activities are presented below. The comparative numbers for 31 March 2018 were previously included in trade and other payables (note 22) but have been separately presented here for clarity.

 

Service Charge Income

 

Service Charge Expense

 

Total

 

€'000

 

€'000

 

€'000

Contract liabilities at 1 April 2017

407

 

454

 

861

(Revenue)/expense recognised during the period

(5,019 )

 

5,224

 

205

Amounts received from customers under contracts

4,853

 

 -

 

4,853

Amounts paid to suppliers

 -

 

(4,174 )

 

(4,174 )

Contract liabilities at 31 March 2018

241

 

1,504

 

1,745

 

 

 

 

 

 

(Revenue)/expense recognised during the period

(2,522 )

 

2,481

 

(41 )

Amounts received from customers under contracts

3,546

 

 -

 

3,546

Amounts paid to suppliers

 -

 

(2,965 )

 

(2,965 )

 

 

 

 

 

 

Contract liabilities at 30 September 2018

1,265

 

1,020

 

2,285

 

24. Cashflow statement

Non-cash movements in operating profit

 

 

Six months ended 30 September 2018 Unaudited

 

Six months ended 30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

 

 €'000

 

 €'000

 

 €'000

Revaluation of investment property

 

(48,734)

 

(61,626)

 

(81,377)

Other gains and losses

 

 -

 

1,082

 

 -

Share based payments

19

3,792

 

3,069

 

7,902

Deferred remuneration

 

2,222

 

2,222

 

4,444

Depreciation

14

150

 

128

 

285

 

 

 

 

 

 

 

Non-cash movements in operating profit

 

(42,570)

 

(55,125)

 

(68,746)

 

Cash expended on investment property

 

 

Six months ended

 30 September 2018 Unaudited

 

Six months ended

30 September 2017 Unaudited

 

Financial year ended 31 March 2018 Audited

 

Note

 €'000

 

 €'000

 

 €'000

Investment property purchases

13

10,424

 

 -

 

39,158

Development and refurbishment expenditure

13

23,809

 

34,122

 

49,663

Decrease/(increase) in investment property costs payable

(1,564 )

 

 -

 

4,966

 

 

 

 

 

 

 

Cash paid for investment property

 

32,669

 

34,122

 

93,787

        

 

25. Financial instruments and risk management

a. Financial risk management objectives and policy

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

b. Financial assets and financial liabilities

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

Asset/Liability

Carrying value

Level

Fair value calculation technique

Assumptions

Loan and receivables

Fair value

3

Assessed in relation to collateral value

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

Trade and other receivables

Amortised cost

3

Discounted cash flow

All trade and other receivables 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.

Financial liabilities

Amortised cost

2

Discounted cashflow

The fair value of financial liabilities held at amortised cost have been calculated by discounting the expected cashflows 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.

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 2018

Unaudited

 

 

 

 

 

Level

Total

Of which are assessed as financial instruments

At Fair value

At amortised cost

Carrying value

Fair value

 

 

€'000

€'000

€'000

€'000

€'000

€'000

Trade and other receivables

3

10,763

1,247

 -

1,247

1,247

1,247

Loans

3

152

152

152

 -

152

152

Derivatives at fair value

2

21

21

21

 -

21

21

Financial liabilities

2

(212,176 )

(212,176 )

 -

(212,176 )

(212,176 )

(212,176 )

Trade and other payables

3

(20,394 )

(3,959 )

 -

(3,959)

(3,959 )

(3,959)

Contract liabilities

3

(2,285 )

(2,285 )

 

(2,285 )

(2,285 )

(2,285 )

 

 

(223,919 )

(217,000)

173

(217,173)

(217,000)

(217,000)

 

 

 

 

 

 

 

 

 

 

As at 31 March 2018

Audited 

 

 

 

Level

Total

Of which are assessed as financial instruments

At Fair value

At amortised cost

Carrying value

Fair value

 

 

€'000

€'000

€'000

€'000

€'000

€'000

Trade and other receivables

2

15,026

2,092

522

1,570

2,092

2,092

Loans

3

152

152

-

152

152

152

Derivatives at fair value

2

88

88

88

 -

88

88

Financial liabilities

2

(219,218 )

(219,218 )

 -

(219,218 )

(219,218 )

(219,218 )

Trade and other payables

2

(19,756 )

(1,369 )

 -

(1,369 )

(1,369 )

(1,369 )

Contract liabilities

2

(1,745 )

(1,745 )

 

(1,745 )

(1,745 )

(1,745 )

 

 

(225,453 )

(220,000 )

610

(220,610 )

(220,000 )

(220,000 )

 

A small amount of trade receivables relating to the recovery of fit-out costs are carried at fair value as they relate to tenant receivables that are receivable in future years.

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 13 (Investment property) and in the table at the start of this note.

 

 

30 September 2018 Unaudited

 

31 March 2018

Audited

 

 

€'000

 

€'000

 

 

 

 

 

Balance at beginning of financial year

1,308,869

 

1,167,539

Purchases, sales, issues and settlement

 

 

Purchases1

34,233

 

89,343

Sales

(61,759 )

 

(29,390 )

Transferred in

 

 

 

Trade receivables

1,247

 

 -

Trade payables

(3,959 )

 

 -

Contract liabilities

(2,285 )

 

 -

Fair value movement

48,734

 

81,377

 

 

 

 

 

Balance at end of period

1,325,080

 

1,308,869

1 Includes development and refurbishment expenditure.

 

d. Financial risk management

The Group has identified exposure to the following risks:

· Market risk

· Credit risk

· Liquidity risk

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

i. 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 cashflows 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 which are classified as financial assets. Financial liabilities comprise short-term payables and bank borrowings. All of these items are denominated in euro. Therefore the primary market risk is interest rate risk. Bank borrowing interest rates are based on short-term variable interest rates and the Group has partly hedged against increasing rates by entering into interest rate caps and swaptions to restrict EURIBOR costs to a maximum of 1%.

Exposure to interest rates is limited to the exposure of its earnings from uninvested funds and borrowings. There were no uninvested funds from the Company's capital raises at this or the previous financial year end. Borrowings were €212.2m (31 March 2018: €219.2m). While interest rates in the Eurozone remain at historic lows, the hedging strategy means there will not be an impact on earnings if EURIBOR rate increases over 1%. The Group's drawings under its facilities were based on a EURIBOR rate of 0% throughout the period and therefore the impact of a rise in EURIBOR to 1% for a six-month period would be approximately €1.1m (31 March 2018: €2.2m).

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.

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

Trade and other receivables: rents are generally received a quarter in advance from tenants, except for residential which is approximately 12% of rental income and therefore there tends to be a low level of credit risk associated with this asset class. There are no concentrations of credit risk at the period end or at the prior financial year end; trade and other receivables has no concentration of credit risk as it comprises mainly prepayments.

The Group has small balances in financial assets which are immaterial in the context of credit risk.

The maximum amount of credit exposure is therefore:

 

30 September 2018 Unaudited

 

31 March 2018 Audited

 

€'000

 

€'000

Financial assets

173

 

240

Trade and other receivables

1,247

 

2,092

Cash and cash equivalents

54,316

 

22,521

 

 

 

 

Balance at end of period

 55,736

 

24,853

 

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 financial year end were:

 

 

30 September 2018 Unaudited

 

31 March 2018 Audited

 

 

€'000

 

€'000

Net current assets at the period end

34,035

 

7,984

 

The nature of the Group's activities means that the management of cash is particularly important and is managed over a three-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 three-year horizon. This allows the Group to monitor the adequacy of its financial arrangements. At 30 September 2018 €187m (31 March 2018: €179m) remained undrawn on the Group's revolving credit facility, which matures in November 2020.

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%.

As at 30 September 2018

Unaudited

 

Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

Non-derivatives

 

 

 

 

 

 

 

Borrowings

 

212,176

232,044

2,259

2,259

4,518

223,008

Trade payables

 

3,959

3,959

3,959

 -

 -

 -

Contract liabilities

 

2,285

2,285

2,285

 -

 -

 -

Total

 

218,420

238,288

8,503

2,259

4,518

223,008

 

 

 

 

 

 

 

 

As at 31 March 2018

Audited

 

Carrying amount

Contractual cash flows

6 months or less

6-12 months

1-2 years

2-5 years

Non-derivatives

 

 

 

 

 

 

 

Borrowings

 

219,218

251,399

19,355

2,259

4,518

225,267

Trade payables

 

1,369

1,369

1,369

 

 

 

Contract liabilities

 

1,745

1,745

1,745

 -

 -

 -

Total

 

222,332

254,513

22,469

2,259

4,518

225,267

 

v. Capital management

The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The key performance indicators used in evaluating the achievement of strategic objectives are return on capital (growth in EPRA NAV) and dividends to ordinary shareholders (dividend per share) as well as the total return of the Group's property portfolio versus the IPD Ireland Index.

Capital comprises share capital, reserves and retained earnings as disclosed in the Consolidated and Company Statement of changes in equity. At 30 September 2018 the total capital of the Group was €1,166m (31 March 2018: €1,112m).

The Group seeks to leverage capital in order to enhance returns. See note 21 for more details.

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 financial year and no breaches occurred.

 

Section 5 - Other

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

26. Capital commitments

The Group has entered into a number of 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 approximately €57m (31 March 2018: €77m).

27. Contingent liabilities

Accounting policy

See note 33 of the Annual Report 2018.

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

28. Related parties

a. Subsidiaries

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

b. Other related part transactions

WK Nowlan Real Estate Advisors was engaged on an arm's length basis to carry out project management, agency and due diligence services across the Group's property portfolios in the financial year ended 31 March 2018 but not during this period. The fees earned by WK Nowlan Real Estate Advisors for these services were benchmarked on normal commercial terms and totalled €0.2m in the year ended 31 March 2018.

The Group earned rent of €70k (gross) from WK Nowlan Real Estate Advisors (31 March 2018: €140k). The lease for the space WK Nowlan Real Estate Advisors occupies in Marine House is currently under review.

William Nowlan is Chairman of WK Nowlan Real Estate Advisors. William Nowlan is a shareholder in WK Nowlan Real Estate Advisors along with Kevin Nowlan and Frank O'Neill. As part of his consultancy agreement with the Company, William Nowlan received €50k in consulting fees for the period ended 30 September 2018 (31 March 2018: €84k). An amount of €25k was owed to him at the period end.

As part of the performance-related payments for the previous financial year (note 9) the following payments were made:

Kevin Nowlan: €2.8m, Frank Kenny: €1.8m, William Nowlan: €1.4m and Frank O'Neill: €0.6m. (31 March 2018: Kevin Nowlan: €3.2m, Frank Kenny: €2.1m, William Nowlan: €1.6m and Frank O'Neill: €0.6m).

As part of his consultancy agreement with the Company, Frank Kenny earned €70k in fees for the period ended 30 September 2018 (31 March 2018: €181k). He also received a fee of €30k during the period in relation to his role as a non-executive Director. An amount of €70k in respect of consultancy fees was owed to him at the period end (31 March 2018: €nil).

Thomas Edwards-Moss rents an apartment from the Group at market rent and paid €6k in rent during the period (30 September 2017: €8k).

29. Events after the reporting period

1. On 12 November 2018 the Directors approved the interim dividend of 1.5 cent per share (€10.5m) which will be paid on 24 January 2019 to shareholders on the register on 4 January 2019.

2. 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 Hibernia's total land interests of 143.7 acres at rezoning, less the initial consideration. 

 

 

3. On 12 November 2018, HubSpot entered an agreement for lease with Hibernia to lease all 112,000 sq. ft. of office accommodation in 1SJRQ. The 20 year lease (with 12 years term certain) commences in June 2019 and HubSpot will pay initial rent of €6.8m per annum after four months rent free. The break date of HubSpot's lease interests over 73,000 sq. ft. in 1 & 2DC has been extended by 3.5 years to align with that in 1SJRQ.

Supplementary information

I. Alternative performance measures (unaudited)

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 cashflows 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 holidays, for the portfolio as at the reporting date.

EPRA cost ratio

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 and adjusted 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 11

II.a

EPRA earnings on a per share basis

EPRA like-for-like rental growth reporting

n/a

II.c

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 12

II.e

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 12

II.e

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

are 'dilutive'.

EPRA NNNAV

IFRS NAV via EPRA NAV

II.e

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

EPRA Net Initial Yield ("EPRA NIY")

n/a

II.d

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.d

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

EPRA vacancy rate

n/a

II.g

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

Loan to value ("LTV")

n/a

Note 21

Net debt as a percentage of the value of investment properties

Final and interim dividend per share

Dividend per share

Note 10

Number of cents to be distributed to shareholders in dividends.

Net debt

Financial liabilities

Note 21

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

Passing rent

n/a

n/a

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

Property related CAPEX

 

II.f.a

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

Reversionary potential

n/a

II.f.b

Potential rent uplift available from leases with break dates, expiring or review events in the period reported.

Total property return

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 IPD Ireland Index.

 

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

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

 

 

EPRA performance measure

 

 

 

Note

 

 

 

Unit

 

 

Six months ended

30 September 2018

 

 

Six months ended 30 September 2017

EPRA earnings

II.a

€'000

12,849

9,024

EPRA earnings per share

II.a

Cent

1.8

1.3

Diluted EPRA EPS

II.a

Cent

1.8

1.3

EPRA cost ratio - including vacancy costs

II.b

%

42.5%

44.1%

EPRA cost ratio - excluding vacancy costs

II.b

%

41.1%

41.8%

 

EPRA performance measure

 

Note

 

Unit

 As at

 30 September 2018

 As at

31 March 2018

Like-for-like rental growth

II.c

%

7.6%

6.5%1

EPRA Net Initial Yield ("NIY")

II.d

%

4.1%

3.8%

EPRA 'topped-up' NIY

II.d

%

4.2%

4.3%

EPRA Net Asset Value ('EPRA NAV')

II.e

€'000

1,166,542

1,112,075

EPRA NAV per Share

II.e

Cent

166.3

159.1

EPRA triple net assets ('EPRA NNNAV')

II.e

€'000

1,166,266

1,111,730

EPRA NNNAV per share

II.e

Cent

166.3

159.1

EPRA vacancy rate

II.g

%

3.0%

2.0%

112 Months ended 31 March 2018

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.

 

Six months ended 30 September 2018

 

Six months ended 30 September 2017

 

Financial year ended 31 March 2018

 

€ '000

 

€ '000

 

€ '000

IFRS Profit for the period after taxation

63,960

 

70,604

 

107,101

Exclude:

 

 

 

 

 

Changes in fair value of investment property

(48,734 )

 

(61,626 )

 

(81,377 )

Profits on disposals of investment property

(2,397 )

 

 -

 

(6,425 )

Other profits or losses on assets disposals net of tax

 -

 

 1

 

 -

Fair value of derivatives

20

 

45

 

104

 EPRA earnings

12,849

 

9,024

 

19,403

Weighted average number of shares

 

 

 

 

 

Basic

694,968

 

688,900

 

688,900

Potential shares to be issued re contingent payments

3,727

 

2,702

 

6,599

Diluted number of shares

698,695

 

691,602

 

695,499

 

 

 

 

 

 

EPRA earnings per share - (cent)

1.8

 

1.3

 

2.8

Diluted EPRA earnings per share (cent)

1.8

 

1.3

 

2.8

 

Impact of internalisation: in order to show the impact of items relating to the original external management structure and the subsequent internalisation which will, to a large extent, cease to be an expense to the Group after November 2018, EPRA earnings are shown below adjusted to remove internalisation-related costs. While the adjusted earnings number does not factor in the cost of any replacement incentive scheme, this is likely to be a significantly lower cost.

 

Six months ended 30 September 2018

 

Six months ended 30 September 2017

 

Financial year ended 31 March 2018

 

€ '000

 

€ '000

 

€ '000

EPRA earnings as calculated above

12,849

 

9,024

 

19,403

 Exclude:

 

 

 

 

 

Prepaid remuneration amortised

2,222

 

2,222

 

4,444

Performance related payments

 2,841

 

2,179

 

6,599

Top-up internalisation expenses

1,113

 

890

 

1,743

Adjusted EPRA earnings

19,025

 

14,315

 

32,189

 

 

 

 

 

 

Weighted average number of shares

694,968

 

688,900

 

688,900

 

 

 

 

 

 

Adjusted basic EPRA earnings per share - (cent)

2.7

 

2.1

 

4.7

 

 

 

 

 

 

 

 

b. EPRA cost ratios

EPRA costs are calculated below. A table excluding internalisation-related costs is also provided. However, some increase in remuneration costs to provide for variable remuneration for employees is anticipated after the expiry of the current arrangements and therefore the amended costs ratios are only provided to show indicative impacts on ratios post November 2018.

 

 

Six months ended 30 September 2018

 

Six months ended 30 September 2017

 

Financial year ended 31 March 2018

 

€ '000

 

€ '000

 

€ '000

Total operating expenses under IFRS

10,444

 

8,680

 

20,116

Property expenses

1,543

 

1,579

 

3,147

Net service charge costs/fees

(41 )

 

136

 

205

EPRA costs including vacancy costs

11,946

 

10,395

 

23,468

Direct vacancy costs

(374 )

 

(537 )

 

(1,073 )

 

 

 

 

 

 

EPRA costs excluding vacancy costs

11,572

 

9,858

 

22,395

 

 

 

 

 

 

Gross rental income

28,134

 

23,579

 

49,075

 

 

 

 

 

 

EPRA cost ratio including vacancy costs

42.5%

 

44.1%

 

47.8%

EPRA cost ratio excluding vacancy costs

41.1%

 

41.8%

 

45.6%

 

Costs adjusted for internalisation

Six months ended 30 September 2018

 

Six months ended

30 September 2017

 

Financial year ended

31 March 2018

 

€ '000

 

€ '000

 

€ '000

EPRA costs including vacancy costs

11,946

 

10,395

 

23,468

Prepaid remuneration amortised

(2,222)

 

(2,222 )

 

(4,444)

Performance related charges

(2,841)

 

(2,179 )

 

(6,599)

"Top-up" internalisation expenses

(1,113)

 

(890 )

 

(1,743)

 

 

 

 

 

 

EPRA costs excluding internalisation effects

5,770

 

5,104

 

10,682

 

 

 

 

 

 

Direct vacancy costs

(374)

 

(537 )

 

(1,073)

 

 

 

 

 

 

EPRA costs excluding direct vacancy costs

5,396

 

4,567

 

9,609

 

 

 

 

 

 

Gross rental income

28,134

 

23,579

 

49,075

Adjusted EPRA cost ratio including vacancy costs

20.5%

 

21.6%

 

21.8%

Adjusted EPRA cost ratio excluding vacancy costs

19.2%

 

19.4%

 

19.6%

 

 

 

c. 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 2018

IFRS information

Like-for-like ("L-f-L") portfolio - six months analysis as at 30 September 2018

Segment

Value

Net rental income for six months ended

30 September 2018

Value L-f-L assets

Net rental income

 L-f-L assets

30 September 2018

Net rental income

L-f-L assets

31 March 2018

Growth in net rental income L-f-L assets

 

€'m

€'m

€'m

€'m

 

€'m

%

 

 

 

 

 

 

 

 

Office assets

985

22.3

722

17.6

16.2

1.4

8.5%

Residential assets

148

2.7

130

2.6

2.6

0.0

1.0%

Industrial assets

24

0.4

13

0.4

0.3

0.1

13.2%

 

 

 

 

 

 

 

 

Total in-place portfolio

1,157

25.4

865

20.6

19.1

1.5

7.6%

Development assets

173

 -

 

 

 

 

 

Assets sold

 

1.2

 

 

 

 

 

Total portfolio

1,330

26.6

 

 

 

 

 

Footnote:

Buildings excluded from this L-f-L:

Developments/refurbishments concluded: 1WML, Two Dockland Central, Hannover Mills, Cannon Place apartments.

Developments in progress/sites: 2 Windmill Lane, Sir John Rogerson's Quay (1-6), 2 Cumberland Place, Gateway lands

Properties acquired: 77 Sir John Rogerson's Quay, 50 City Quay, 129 Slaney Road Industrial Park, Clanwilliam apartments

Properties sold: New Century House (the Chancery, Hannover Street East and Lime Street sold in the six months ended 31 March 2018)

 

d. EPRA Net Initial Yield ("EPRA NIY") and EPRA "topped-up" Net Initial Yield

EPRA NIY: this measures the inherent yield of the portfolio according to set guidelines to allow investors to compare real estate investment companies across Europe on a consistent basis, using current cash passing rent. EPRA "topped-up" NIY: this measures yield based on rents adjusted for the expiration of lease incentives, i.e. on a contracted rent basis.

As at 30 September 2018

 

 

 

 

 

 

 

 

 

Office

Residential

Industrial

 

Total

 

Development

 

 

€'000

€'000

€'000

 

€'000

 

€'000

€'000

Investment property at fair value

984,446

148,179

24,100

 

1,156,725

 

173,200

1,329,925

Less: Development/refurbishment

 -

 -

(6,500)

 

(6,500)

 

(173,200)

(179,700)

Completed property portfolio

984,446

148,179

17,600

 

1,150,225

 

 

1,150,225

Allowance for purchasers' costs

83,284

6,609

1,489

 

91,382

 

 

 

Gross up completed property portfolio

1,067,730

154,788

19,089

 

1,241,607

 

 

 

Annualised cash passing rental income 1

45,906

6,544

1,153

 

53,603

 

 

 

Property outgoings2

(1,606)

(1,335)

-

 

(2,941)

 

 

 

Annualised net rents

44,300

5,209

1,153

 

50,662

 

 

 

Expiration of lease incentives and fixed uplifts

1,395

47

118

 

1,560

 

 

 

"Topped-up" annualised net rent

45,695

5,256

1,271

 

52,222

 

 

 

 

 

 

 

 

 

 

 

 

EPRA NIY

4.1%

3.4%

6.0%

 

4.1%

 

 

 

EPRA "Topped-up" NIY

4.3%

3.4%

6.7%

 

4.2%

 

 

 

 

 

 

 

 

 

 

 

 

1Cash passing rent includes residential rents gross as property outgoings are included in the line below.

2 Annualised basis at current vacancy levels

 

At 31 March 2018

 

Office

Residential

Industrial

 

Total

 

Development

 

 

€'000

€'000

€'000

 

€'000

 

€'000

€'000

Investment property at fair value

1,017,937

138,480

17,800

 

1,174,217

 

134,500

1,308,717

Less: Development/refurbishment

 -

 -

(5,000)

 

(5,000)

 

(134,500)

(139,500)

Completed property portfolio

1,017,937

138,480

12,800

 

1,169,217

 

 

1,169,217

Allowance for purchasers' costs

86,117

6,176

1,083

 

93,376

 

 

 

Gross up completed property portfolio

1,104,054

144,656

13,883

 

1,262,593

 

 

 

Annualised cash passing rental income1

43,836

6,816

695

 

51,347

 

 

 

Property outgoings

(1,662)

(1,229)

-

 

(2,891)

 

 

 

Annualised net rents

42,174

5,587

695

 

48,456

 

 

 

Expiration of lease incentives and fixed uplifts

5,798

47

10

 

5,855

 

 

 

"Topped-up" annualised net rent

47,972

5,634

705

 

54,311

 

 

 

 

 

 

 

 

 

 

 

 

EPRA NIY

3.8%

3.9%

5.0%

 

3.8%

 

 

 

EPRA "Topped-up" NIY

4.3%

3.9%

5.1%

 

4.3%

 

 

 

 

 

 

 

 

 

 

 

 

1Cash passing rent includes residential rents gross as property outgoings are included in the line below.

 

e. EPRA NAV and EPRA NNNAV

The objective of these measures is to highlight the fair value of net assets on an ongoing, long-term basis. Therefore assets which are not expected to crystallise in normal circumstances are excluded while trading properties are adjusted to their fair value. The Group presents its investment properties in its financial statements at fair value as allowed under IAS 40 and has no items not expected to crystallise in a long-term investment property business model. The fair value of derivative instruments is excluded from EPRA NAV on the basis that these are hedging instruments and intended to be held to maturity. EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations (if any).

 

As at 30 September 2018

 

As at 31 March 2018

 

€ '000

 

cent per share

 

€ '000

 

cent per share

 

 

 

 

 

 

 

 

IFRS NAV

1,166,266

 

 

 

1,111,730

 

 

Fair value of financial instruments

276

 

 

 

345

 

 

EPRA NAV

1,166,542

 

166.3

 

1,112,075

 

159.1

 

 

 

 

 

 

 

 

Fair value of financial instruments

(276 )

 

 

 

(345)

 

 

EPRA NNNAV

1,166,266

 

166.3

 

1,111,730

 

159.1

 

 

 

 

 

 

 

 

Ordinary shares in issue

697,589

 

 

 

692,347

 

 

Estimated additional shares due for issue from performance reserve

3,727

 

 

 

6,599

 

 

Ordinary shares in issue including performance shares to be issued -"diluted"

701,316

 

 

 

698,946

 

 

 

f. Portfolio information

Portfolio information can be generally found in the Business review section of this report. Below is further information based on guidelines issued by EPRA.

a) Property related capital expenditure ("capex")

Capital expenditure on the investment portfolio analysed to allow an understanding of the investment in the portfolio during the period. Further information on capex is available in note 13 to the condensed consolidated financial statements as well as in the Business review section of this half yearly financial report.

Capex

Note

 

Six months ended

30 September 2018

 

Six months ended 31 March 2018

 

 

 

€'m

 

€'m

 

 

 

 

 

 

Acquisitions

13

 

10.4

 

32.0

Development and refurbishment expenditure under IFRS

 

13

 

23.8

 

20.7

Analysed as

 

 

 

 

 

Developments1

 

 

20.1

 

16.4

Like-for-like portfolio

 

 

1.0

 

3.5

Other2

 

 

2.7

 

0.8

 

 

 

 

 

 

Total capital expenditure for the period

 

 

34.2

 

52.7

1Includes major refurbishments

2Landlord contributions and capitalised financing costs

 

 

 

b) Reversionary potential

The following data is calculated for the "in-place" office portfolio and based on the earliest of review, break or expiry dates. Residential data is excluded as reversion to ERV is limited to 4% in rent-controlled areas and all leases roll on average annually. Contracted rent is used to avoid overstating uplifts to ERV as fixed uplifts are generally in the first year of lease and are accounted for on a smoothed period over the lease term in the financial data. Further details on portfolio rent statistics can be found in the Business review.

Based on contracted rents

 

 

 

 

 

 

 

Ending 30 September:

 

2019

2020

2021-2023

>2023

 

Total

 

 

€'m

€'m

€'m

€'m

 

€'m

Contracted rent

 

7.2

5.0

32.2

2.9

 

47.3

 

 

 

 

 

 

 

 

"In-place" portfolio - Uplift to ERV

 

2.1

1.0

0.4

(0.1)

 

3.4

"In-place" portfolio - reviews in progress

 

2.0

-

-

-

 

2.0

 

 

 

 

 

 

 

 

Total ERV uplift "in-place" portfolio1

 

4.1

1.0

0.4

(0.1)

 

5.4

 

 

 

 

 

 

 

 

% increase possible

 

56.6%

19.5%

1.3%

(2.8)%

 

11.4%

From vacant space (€'m)

 

1.7

-

-

-

 

1.7

Total

 

5.8

1.0

0.4

(0.1)

 

7.1

1EPRA uplift includes all "in-place" office potential uplifts. The Group may develop some of these properties in the longer term and therefore these reversions may not be obtained. Approximately €0.3m arises in 2019 on a lease under which the tenant has exercised its' break option and the achievement of this uplift may therefore be delayed pending a re-letting of the property.

g. EPRA vacancy rate

This provides comparable and consistent vacancy data for investors based on the independent valuers' assessment of ERV. The EPRA vacancy rate measures the ERV of vacant space expressed as a percentage of the total ERV of the "in-place" portfolio. Vacancy in the office portfolio based on area is given in the Business review section of this Half yearly financial report.

 

As at 30 September 2018

 

 

 

As at 31 March 2018

 

€ '000

 

 

 

€ '000

Annualised ERV vacant units1

1,894

 

 

 

1,283

Annualised ERV completed portfolio

62,782

 

 

 

65,571

 

 

 

 

 

 

EPRA vacancy rate

3.0%

 

 

 

2.0%

1Cannon Place apartments are included as at 30 September 2018 as refurbishment was completed during the period.

 

 

 

Directors and Other Information

 

Directors Daniel Kitchen (Chairman)

Colm Barrington (Senior Independent Director)

Thomas Edwards-Moss (CFO)

Stewart Harrington

Frank Kenny

Kevin Nowlan (CEO)

Terence O'Rourke

 

Company Secretary Sean O'Dwyer

 

Assistant Secretary Sanne Corporate Administration Services Ireland

Limited t/a Sanne

4th Floor

76 Lower Baggot Street

Dublin D02 EK81

Ireland

 

Registered Office South Dock House

Hanover Quay

Dublin D02 XW94

Ireland

 

Company Number 531267

 

Independent Auditor Deloitte Ireland LLP

Chartered Accountants and Statutory Audit Firm

Hardwicke House

Hatch Street Dublin D02 ND96 Ireland

 

Tax Adviser KPMG

1 Stokes Place

St. Stephen's Green

Dublin D02 DE03

Ireland

 

Independent valuer Cushman and Wakefield

164 Shelbourne Road

Ballsbridge

Dublin 4

Ireland 

Principal Banker Bank of Ireland

50-55 Baggot Street Lower

Dublin D02 Y754

Ireland

 

 

 

Depositary  BNP Paribas Securities Services, Dublin Branch

Trinity Point 10-11

Leinster Street South

Dublin D02 EF85

Ireland

 

Registrar Link Registrars Limited t/a Link Asset Services

2 Grand Canal Square

Dublin D02 A342

Ireland

 

Principal Legal Adviser A&L Goodbody

25/28 North Wall Quay

IFSC

Dublin D01 H104

Ireland

 

Corporate Brokers Goodbody Stockbrokers

Ballsbridge Park

Ballsbridge

D04 YW83

Ireland

 

Credit Suisse International

One Cabot Square

London E14 40J

United Kingdom

 

 

 

Glossary

AIF is an Alternative Investment Fund

AIFM is an Alternative Investment Fund Manager

Cash passing rent is the gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews.

Contracted rent is the annualised rent adjusted for the inclusion of rent that is subject to a rental incentive such as a rent-free period or reduced rent year.

Developer's profit is the profit on cost estimated by valuers which is typically a percentage of developer's costs, usually between 10% to 20%.

Development construction cost is the total costs of construction to completion, excluding site and financing costs. Finance costs are assumed at a notional 6% per annum by the valuers.

DRIP or dividend reinvestment plan is a plan offered by the Group that allows investors to reinvest their cash dividends by purchasing additional shares on the dividend payment date.

EPRA is the European Public Real Estate Association, which is the industry body for European REITs. It produces guidelines for number of standardised performance measures (e.g. EPRA earnings, EPRA NAV).

EPRA cost ratio (including direct vacancy costs) is the ratio of net overheads and operating expenses against gross rental income. Net overheads and operating expenses relate to all administrative and operating expenses net of any service fees, recharges or other income which is specifically intended to cover overhead and property expenses. 

EPRA cost ratio (excluding direct vacancy costs) is the same as above except it excludes direct vacancy costs.

EPRA earnings are the profit after tax excluding revaluations and gains and losses on disposals and associated taxation (if any).

EPRA NAV per share is the EPRA NAV divided by the diluted number of shares at the period end.

EPRA net asset value ("EPRA NAV") are defined as the IFRS assets excluding the mark to market on effective cash flow hedges and related debt instruments and deferred taxation on revaluations.

EPRA net initial yield ("NIY") is the passing rent generated by the investment portfolio at the balance sheet date, less estimated recurring irrecoverable property costs, expressed as a percentage of the portfolio valuation as adjusted. The portfolio valuation is adjusted by the exclusion of development properties and those under refurbishment.

EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations.

EPRA topped-up net initial yield is calculated as the EPRA NIY but adjusting the passing rent for contractually agreed uplifts, where these are not in lieu of rental growth.

EPRA vacancy rate is the Estimated Rental Value ("ERV") of vacant space divided by the ERV of the whole portfolio, excluding developments and residential property. This is the inverse of the occupancy rate.

EPS or earnings per share is the profit after taxation divided by the weighted average number of shares in issue during the period

Equivalent yield is the weighted average of the initial yield and reversionary yield and represents the return that a property will produce based on the occupancy data of the tenant leases.

Estimated rental value ("ERV") or market rental value is the external valuers' opinion as to what the open market rental value of the property is on the valuation date, and which could reasonably be expected to be the rent obtainable on a new letting on that property on the valuation date.

Fair value movement is the accounting adjustment to change the book value of the asset or liability to its market value.

FRI Lease Full repairing and insuring Lease

Gross rental income is the accounting based rental income under IFRS. When the Group provides incentives to its tenants the incentives are recognised over the lease term on a straight-line basis in accordance with IFRS. Gross rental income is therefore the passing rent as adjusted for the spreading of these incentives.

In-place portfolio is the portfolio of completed properties, i.e. excluding development and refurbishment projects.

Internalisation refers to the acquisition of the Investment Manager and the ultimate elimination of reliance on the external investment management function through bringing these activities inside the Group.

IPO is the Initial public offering, i.e. the first equity raising of the Company.

IPD is the Investment Property Databank Limited which is part of the MSCI Group and produces as independent benchmark of property returns (IPD Ireland Index) and which provides the Group with the performance information required in calculating the performance-based management fee.

MSCI/IPD Index is the MSCI/SCSI/Investment Property Databank Limited Ireland Quarterly Property Index-All Property (the ''IPD Ireland Index'')

Lease incentive is any consideration or expense, borne by the Group, in order to secure a lease.

LEED ("Leadership in Energy and Environmental Design") is a Green Building Certification System developed by the US Green Building Council (USGBC). Its aim is to be an objective measure of building sustainability.

Like for like rental income growth is the growth in net rental income on properties owned through the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either financial year or properties with guaranteed rental reviews. The Group does not present this statistic in this financial year as the last financial year was the first in which the Group held investment properties and therefore it does not have two full years of history to which to base this

Market abuse regulations are issued by the Central Bank of Ireland and can be accessed on https://www.centralbank.ie/regulation/securities-markets/market-abuse/Pages/default.aspx.

Long-Term incentive plan ("LTIP") aims to encourage staff retention and align their interests with those of the Group through the payment of a percentage of performance-related rewards through shares in the Company that vest after a future period of service.

Net development value is the external valuers' view on the end value of a development property when the building is fully completed and let.

Net equivalent yield is the weighted average income return (after allowing for notional purchaser's costs) a property will produce based on the timing of the income received. As is normal practice, the equivalent yields (as determined by the external valuers) assumes rent is received annually in arrears.

Net reversionary yield is the expected yield after the rent reverts to the ERV.

Net lettable or net internal area ("NIA") the usable area within a building measured to the internal face of the perimeter walls at each floor level.

Occupancy rate is the estimated rental value of let units as a percentage of the total estimated rental value of the portfolio, excluding development properties.

Over rented is used to describe when the contracted rent is higher than the ERV.

Passing rent is the annualised gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews.

Property income distributions ("PIDs") are dividends distributed by a REIT that are subject to taxation in the hands of the shareholders. Normal withholding tax still applies in most cases.

PRS is the private rented sector

REIT is a Real Estate Investment Trust as set out under section 705E of the Taxes Consolidation Act 1997.

Reversion is the rent uplift where the ERV is higher than the contracted rent.

Royal Institute of Chartered Surveyors ("RICS") Professional Standards, RICS Global Valuation Practice Statements and the RICS Global Valuation Practice Guidance - Applications contained within the RICS Valuation - Global Standards 2017 (the "Red Book") issued by the Royal Institute of Chartered Surveyors provide the standards for preparing valuations on property.

Sq. ft. square feet

Tenant or lease incentives are incentives offered to occupiers on entering into a new lease and may include a rent free or reduced rent period, or a cash contribution to fit-out. Under accounting rules, the value of these incentives is amortised through the rental income on a straight-line basis over the term of the lease or the period to the next break point.

TMT sector is the technology, media and telecommunications sector.

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

Total shareholder return is the growth in share value over a period assuming dividends are reinvested to purchase additional units of stock.

Transparency regulations enhance the information made available about issuers whose securities are admitted to trading on a regulated market and further information is available on https://www.centralbank.ie/regulation/securities-markets/transparency/Pages/default.aspx.

Under rented is the term used to describe where contracted rents are lower than ERV. This implies a positive reversion after expiry of the current lease contract terms.

Valuer is the independent valuer appointed by the Group to value the Group's investment properties at the date of the consolidated financial statements. From September 2017 the Group has used Cushman and Wakefield. Previously the Group has used CBRE.

WAULT is weighted average unexpired lease term and is variously calculated to break, expiry or next review date.

 

 

[1] Total property return is the return of the property portfolio (capital and income) as calculated by MSCI, the producers of the IPD Ireland Index.

[2] On a like-for-like basis

[3] Developments comprise 1SJRQ, 2WML and Cumberland Phase 2

[4] 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

[5] Post completion

[6] Excludes refurbishment and development projects

[7] Comprising the Business review and Principal risks and uncertainties

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
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