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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hibernia Reit P.l.c. | LSE:HBRN | London | Ordinary Share | IE00BGHQ1986 | ORD EUR0.10 (CDI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 136.90 | 136.20 | 137.60 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMHBRN
RNS Number : 6473W
Hibernia REIT PLC
16 November 2017
Half yearly financial report
For the six-month period to 30 September 2017
16 November 2017
Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces its interim results for the six months to 30 September 2017. Highlights for the period:
Good financial performance helped by yield compression and developments
-- Investment property portfolio value of EUR1,265.6m, up 5.2%(1) in the period (developments up 8.4%(1,2) )
-- Six-month total property return(3,4) of 7.2% vs IPD Ireland Index of 4.8% -- EPRA NAV(4) per share of 155.3 cent, up 6.2% since March 2017 -- Net rental income of EUR21.9m, up 31.0% on same period last year (Sept 16: EUR16.7m) -- Profit before tax of EUR70.6m (Sept 16: EUR32.4m) including revaluation surplus -- EPRA earnings(4) of EUR9.0m, up 13.1% on same period last year (Sept 16: EUR8.0m)
Continued progress with development programme: 1WML and 2DC completed
-- 1WML completed in August 2017, delivering 124,000 sq. ft. Grade A office and profit on cost >80%(5)
-- Three committed schemes at September 2017 (247,000 sq. ft. Grade A offices) completing by end 2018
o Hanover Building, to be renamed "2WML" (71,000 sq. ft., incl. 12,000 sq. ft. gym) added to committed schemes in May 2017
o 2DC (73,000(6) sq. ft.) completed in November 2017, delivering a profit on cost >35%(5)
-- Near and longer-term pipeline of five schemes totalling 660,000 sq. ft. of office space post completion
New lettings increasing income and WAULT of portfolio, with plenty more to come
-- Annual contracted rent roll(4) now EUR49.5m, up 7.1% on 30 September 2016(7)
-- "In-place" office portfolio income duration increased with WAULT to earlier of break / expiry now 6.9 years, up 16.9% on 30 September 2016
o Increase in WAULT driven by new lettings in completed developments which have avg. term to earlier of break / expiry of 10.7 years and avg. rents of EUR51psf
-- Remaining "in-place"(8) CBD offices have avg. rents of EUR37psf, reversionary potential of 23% and an avg. period to earlier of rent review or expiry of 2.9 years
Strong balance sheet with undrawn facilities available for further investment
-- Net debt(4) at 30 September 2017 of EUR181.0m, LTV(4) of 14.3% (March 2017: EUR155.3m, LTV 13.3%)
-- Cash and undrawn facilities of EUR263.2m: EUR150.0m net of committed development spend and planned repayment of 1WML facility
Growing dividend as rental income increases
-- Interim dividend up 46.7% to 1.1 cent per share declared, representing 50% of dividends paid in respect of the prior year (Sept 2016: 0.75 cent)
-- Expect further growth as developments are leased and reversion captured via lease events / reviews
Estimated financial impact of increase in stamp duty
-- Stamp duty on commercial property transactions increased from 2% to 6%, effective 11 October 2017
-- Estimated impact if effective as at 30 September 2017:
o Portfolio value and profit before tax would have reduced by EUR53.7m
o Proforma EPRA NAV(4) per share would have been 147.5 cent, up 0.8% since March 2017
Kevin Nowlan, Chief Executive Officer of Hibernia, said:
"We are pleased to report good performance by the Group in the first half with portfolio returns well in excess of those of the MSCI/IPD Ireland property index, helped by our development programme. The increase in stamp duty occurred after the period end and is therefore not reflected in the numbers we have reported, although we estimate its immediate financial impact. It remains to be seen whether the change will have any impact on investment market sentiment. At present demand for prime assets continues to be robust.
"Demand from domestic and international occupiers for office space in Dublin remains very strong: 2017 is likely to be close to a record year for office take-up and we have started to see some Brexit-related lettings occurring. In the longer term Dublin is expected to have one of the highest growth rates in office-based employment among major European cities, which bodes well for future tenant demand.
"We remain optimistic about our prospects: our portfolio is rich in opportunity, we expect to recycle capital and we have flexible, low-cost funding available to support further developments and acquisitions as appropriate."
Contacts:
Hibernia REIT plc +353 1 536 9100
Kevin Nowlan, Chief Executive Officer
Tom Edwards-Moss, Chief Financial Officer
Murray Consultants
Doug Keatinge: +353 86 037 4163, dkeatinge@murrayconsultants.ie
Jill Farrelly: +353 87 738 6608, jfarrelly@murrayconsultants.ie
About Hibernia REIT plc
Hibernia REIT plc is a Dublin-focused Irish Real Estate Investment Trust ("REIT"), listed on the Irish and London Stock Exchanges, which owns and develops Irish property. All of Hibernia's portfolio of properties is in Dublin and it specialises in city centre offices.
The results presentation will take place at 9.00 am today: a conference call facility will be available to listen to the presentation live using the following details:
Ireland Toll: +353 (0)1 436 0959
Ireland Toll-Free: 1800 930 488
Participant code: 830614
Disclaimer
This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements speak only as at the date of this Announcement. The Group will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.
Market Review
General economy
Ireland's economic momentum has continued in 2017 with year-on-year GDP growth of 5.2% and 5.8% in the first two quarters (source: CSO). This growth is underpinned by core domestic demand, a key indicator of the underlying strength of the Irish economy, which is expected to recover to pre-crisis levels by mid-2018 (source: Goodbody). The Department of Finance is forecasting GDP growth of 4.3% and 3.5% for 2017 and 2018, and a medium-term growth rate of around 2.5% per annum. While these figures represent a reduction in the exceptional growth rates enjoyed in recent years, they compare favourably with forecasts for the Eurozone of around 1.8% for 2017 and 2018 (source: OECD).
Unemployment in Ireland continues to fall and stood at 6.1% in September 2017 (Sept 2016: 7.5%). Jobs were added in all regions of Ireland in the year to June 2017, indicating a broad-based economic recovery (source: CSO, Goodbody). Dublin unemployment also stands at 6.1%, its lowest rate in nine years, and employment data indicates that firms are adding jobs more rapidly in Dublin than elsewhere (CSO, Dublin Economic Monitor).
Despite spending increases and tax cuts of EUR1.2bn in Budget 2018, the Irish Government's fiscal position is expected to improve slightly in 2018 as a government deficit of 0.2% of GDP and a debt/GDP ratio of 69% are forecast (source: Department of Finance, Davy). While the medium-term forecast for the public finances projects a budget surplus in 2020, pressure for increased public spending and tax cuts may prevent this.
Given Ireland's dependence on international trade and foreign direct investment, factors such as the UK's departure from the EU and potential US tax and trade policy changes remain key downside risks to the economy. No discernible negative impact has been felt from these factors as yet: during 2016 6,100 IDA-sponsored jobs were created in Dublin alone, comparing favourably with the five-year average of 4,900 annual job additions in the county (source: IDA). 2017 performance to date has also been solid, with a total of 6,300 IDA-sponsored jobs announced nationwide and 4,000 of these located in the capital (source: IDA, Davy). Despite the risk to the Irish economy posed by the UK's exit from the EU, the departure may create opportunities at the same time, particularly for Dublin from UK-based firms moving or from a redirection of future foreign investment away from the UK.
Irish property investment market
In the 12 months to 30 September 2017 the MSCI Ireland Property Index delivered a total return of 10.7% (vs 11.2% in 12 months to 31 March 2017): the industrial sector was the top performer in the 12 months to September 2017 with a total return of 14.5% versus retail at 10.8% and offices at 10.5%. The majority of capital growth in the office sector in the MSCI Ireland Index (5.8% in the 12 months to 30 Sept 2017) came from ERV growth rather than yield compression (4.2% of the 5.8%). However, in the quarter ending 30 Sept 2017 yield compression was the biggest driver of capital growth in the office sector, representing 1.5% of the 2.0% total capital return. CBRE moved their prime office yield from 4.65% to 4.25% in September 2017 while the other main agencies in Dublin are of the view that prime yields range from 4.00% to 4.50%. CBRE expects prime yields may contract further over the coming months as new transactional evidence materialises.
In October 2017, as part of Budget 2018, the Irish Government announced a trebling of stamp duty on commercial property transactions from 2% to 6%. The increase in stamp duty is estimated to have a one-off negative impact of around 4% on commercial property values as it will increase purchasers' costs by the same amount: the net impact on valuations over the past six months may be offset to a degree by the yield compression mentioned above for prime assets.
Transaction volumes (by value) in all sectors of the commercial property market have declined in the last 12 months following three years of exceptional activity due to deleveraging: volumes in the nine months to 30 September 2017 were EUR1.3bn, with office representing 39% of the volume (source: CBRE). Prior to Budget 2018, JLL was expecting total volumes for 2017 of between EUR2.0bn and EUR2.5bn, assuming certain anticipated large asset sales closed in time for the end of the year. The market continues to see high levels of demand from investors, with European funds active and concentrating particularly on prime assets. It remains to be seen whether the stamp duty changes will have any longer-lasting impact on perceptions of Ireland as an attractive investment market.
Office occupational market
Take-up in the Dublin office market has been strong: in the nine months to September 2017 it totalled 2.0m sq. ft. (source: CBRE), meaning it has already reached the 10-year average of 2.0m sq. ft. with one quarter still to go. Domestic and U.S.-headquartered occupiers continue to dominate, representing 45% and 35% of year-to-date take-up, respectively, but Brexit-related occupiers are also adding to demand (source: CBRE). Demand is up slightly quarter-on-quarter to almost 2.8m sq. ft. and is at the same level it was at the beginning of 2017, which is encouraging for future take-up trends (source: CBRE).
While the Dublin office rental market is usually characterised by relatively small leasing deals, 2017 has seen larger than usual lettings: almost 40% of take-up year to date has been greater than 50,000 sq. ft. whereas lettings of this size only accounted for 28% of the six previous years (source: CBRE). Occupiers taking more than 50,000 sq. ft. included Facebook, AIB, JP Morgan, Google and the Office of Public Works (i.e. the Irish State). TMT companies continue to be the largest takers of space representing over 36% of take-up in the nine-month period, while Financial Services firms made up 20% and the State represented 15%. (source: CBRE). Despite some large lettings in the suburbs, the city centre continues to dominate the letting market at 76% of take-up in 2017.
The overall vacancy rate at the end of Q3 was 6.2% vs. 6.6% at the beginning of 2017 and the Grade A vacancy rate in Dublin 2/4 (where 66% of Hibernia's portfolio is located) was 2.6% at the end of Q3 2017 vs. 2.3% at the beginning of 2017 (due to some completions) (source: CBRE). Despite increased supply as new completions come on stream, demand from high profile occupiers has resulted in an upward move in prime rents for some of Dublin's most sought-after locations (source: BNP) with headline rents now standing at EUR63.50psf and some agents expecting them to reach EUR65.00psf by the end of 2017 (source: CBRE).
Office development pipeline
Competitively priced funding for speculative development remains limited, which is resulting in the owners of key development sites in the CBD seeking large pre-lets before commencing development. While there were a few pre-lets in 2016, they remain relatively infrequent in the Dublin office market and to date there has been none in 2017. Many developments are achieving lettings mid-construction (sometimes termed "mid-lets"): mid-lets agreed thus far in 2017 include to Barclays, Informatica and Google, all achieving rents at or in excess of EUR55.00 psf and term to break in excess of 12 years. 2017 also witnessed the sale of a 130,000 sq. ft. office building mid-construction to JP Morgan.
2016 saw the delivery of the first newly constructed office buildings in Dublin in over five years. Since then 2.0m sq. ft. of new office space has been delivered, c.95% of which is now let. We expect a total of 1.9m sq. ft. to be delivered in 2017 of which c.75% is already leased or reserved. Looking further ahead, we expect around 2.0m sq. ft. to be delivered in 2018, 1.3m sq. ft. in 2019 and 2.4m sq. ft. 2020: a total of 8.9m sq. ft. gross of new space delivered between 2015 and 2020. This represents c.7.9m sq. ft. of net new space (as a result of demolition to facilitate new development) and would represent an increase in the total stock figure of c.25% vs an increase in stock of 98% from 1993 - 2002 and 51% in 2003 - 2011 (source: Goodbody). The Government has announced plans to more than double (3% to 7%) the proposed tax on vacant sites which is due to come into operation in January 2019. While the details of this tax remain unclear it may spur some development if introduced.
Residential sector
Housing completions and commencements continue to fall well short of the Government's target of delivering 25,000 homes per annum in the period to 2021 (Source: Rebuilding Ireland/Government of Ireland) and the lack of available housing stock remains a problem, particularly in Dublin. On the positive side, completions and commencements are increasing and are up 29% and 24%, respectively, year-on-year and now stand at 18,000 and 5,700 on a 12-month basis (source: Department of Housing). Rents in Dublin are up 12.3% in the 12 months to Q3 2017 (source: DAFT). In the sales market, Dublin prices are up 12.2% year-on year (source: RPPI). Mortgage drawdowns were also up 33% in nominal terms on the year to reach EUR3bn in H1 2017 and sales volumes are also up 16% year on year (source: Davy). Demand from investors remains strong in residential, and in particular the Private Rented Sector (source: JLL). However, lack of available stock is hindering investment volumes in this sector.
Despite rising sales prices and rents, apartment construction remains limited: with apartments accounting for 15% of new builds and amounting to less than 1,000 in the year to date (source: Goodbody using BER data). The current high cost of apartment delivery, such as those highlighted in a recent report by the SCSI on the topic, are a major inhibitor of new apartment supply, despite a serious shortage of this accommodation type (source: Goodbody).
Business Review
Acquisitions and disposals
Consistent with its expectations of slowing net acquisition expenditure, the Group made no material acquisitions or disposals in the six months to 30 September 2017 (six months to Sept 2016: acquisition spend EUR52.4m)
Portfolio overview
As at 30 September 2017 the property portfolio consisted of 29 investment properties valued at EUR1,266m(9) (31 March 2017: 28 investment properties valued at EUR1,167m)(9) , which can be categorised as follows:
Hot Features
Premium
% uplift % uplift
since Mar since Mar Passing
17 17 rent(10)
Value as
at Sept excl. new incl. Equivalent
17 (all acquisitions new acquisitions Yield on
assets) % of portfolio (1) (1) value (%) (EURm)
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
1. Dublin
CBD Offices
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
Traditional
Core EUR467m 37% 6.3% 6.3% 5.4%(2) EUR21.8m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
EUR268m
IFSC (3) 21% 3.5% 3.5% 5.0% EUR9.9m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
EUR296m
South Docks (4) 23% 10.0% 10.0% 4.9% EUR6.0m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
Total Dublin
CBD Offices EUR1,031m 81% 6.6% 6.6% 5.1%(2) EUR37.7m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
2. Dublin
CBD Office
Development
(5) EUR100m 8% 1.2% 1.2% - -
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
3. Dublin
Residential EUR117m 9% 0.1% 0.0% 4.6%(6) EUR5.1m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
4. Industrial EUR18m 2% (5.7)% (10.1)% 5.1% EUR0.7m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
Total Investment 5.1%(2) (6)
Properties EUR1,266m 100% 5.4% 5.2% (7) EUR43.5m
------------------ ---------- --------------- --------------- ------------------- ------------ ----------
1. Includes capex in acquisition costs
2. Harcourt Square yield is based on the total value which includes residual land value
3. Includes full value of 2DC in IFSC (even though under refurbishment at 30 Sept 17) 4. Excludes the value of space occupied by Hibernia in South Dock House 5. Includes 2WML, 1SJRQ & Cumberland Phase II
6. Excludes Cannon Place as valued on vacant possession basis. This is the net yield based on Hibernia's actual operating costs. C&W has valued Wyckham Point and Dundrum View on a gross yield basis: gross initial yield ex acquisition costs is 5.7% and reversion is 6.0%
7. Excludes all CBD office developments but includes 1WML and 2DC in Dublin CBD Offices
The office element of our portfolio had the following statistics at 30 September 2017:
WAULT
Contracted to review WAULT to
rent ERV (1) break/expiry
% of
% of next % of rent
rent rent MTM (3)
upwards review at next
only cap lease
(EURm/EURpsf) (EURm/EURpsf) (years) (years) (2) & collar event
--------------- ----------------- ----------------- ------------ --------------- --------- ---------- -----------
Acquired
"in-place"
office EUR27.5m EUR33.9m
portfolio (EUR37psf) (EUR47psf) 2.9yrs 4.9yrs 38% - 62%
--------------- ----------------- ----------------- ------------ --------------- --------- ---------- -----------
Completed
office
developments EUR13.7m EUR14.0m
(4) (EUR51psf) (EUR51psf) 4.2yrs 10.7yrs - 62% 38%
--------------- ----------------- ----------------- ------------ --------------- --------- ---------- -----------
Whole
"in-place"
office EUR41.3m EUR47.9m
portfolio (EUR41psf) (EUR48psf) 3.3yrs 6.9yrs 25% 21% 54%
--------------- ----------------- ----------------- ------------ --------------- --------- ---------- -----------
Pre-let
committed EUR2.3m EUR2.2m
schemes (5) (EUR53psf) (EUR51psf) 4.8yrs 10.5yrs - 22% 78%
--------------- ----------------- ----------------- ------------ --------------- --------- ---------- -----------
Whole office EUR43.5m EUR50.1m
portfolio (EUR41psf) (EUR48psf) 3.4yrs 7.0yrs 24% 21% 55%
--------------- ----------------- ----------------- ------------ --------------- --------- ---------- -----------
1. Weighted average unexpired lease term ("WAULT") to earlier of review or expiry
2. Incl. small amount (<1%) of CPI linked
3. Mark to Market ("MTM")
4. 1 Cumberland Place, SOBO, 1DC, 1WML
5. 2DC
We continue to work to increase portfolio income and extend unexpired lease terms and income security through the completion and letting of new office developments and through rent reviews and lease renewals in the "in-place" portfolio. In the period, we completed 1 Windmill Lane ("1WML"), where the office space is now 57% let on leases with average terms achieved on lettings of 19.2 years and first break options at 11.7 years, adding EUR4.1m to the "in-place" office portfolio and increasing WAULTs to break and expiry. The remaining "in-place" portfolio (i.e. the acquired "in-place" office portfolio) has an average period to the earlier of rent review or expiry of 2.9 years and reversionary potential of 23% (at valuers' ERVs(11) ) giving us further potential to enhance portfolio income and duration.
The "in-place" office portfolio occupancy level at 30 September 2017 was 90% (31 March 2017: 97%). The reduction in occupancy rate is principally due to the completion of the 1WML development in August 2017: c. 50% of the 124,000 sq. ft. office building was unlet at period end, which has decreased to 43% since then.
Developments and refurbishments
Schemes completed
The Group completed 1WML in the period, which totals 124,000 sq. ft. of new Grade A office space, 7,000 sq. ft. townhall and reception, 8,000 sq. ft. of retail and 14 residential units. As at 30 September 2017 the office building was c. 50% let to Informatica and Core Media. Since period end the Group has let further space to Pinsent Mason, taking occupancy in the building to 57%. Upon completion the project delivered a profit on cost of over 80% (post stamp duty change and excluding finance costs) and when fully let the yield on cost is expected to exceed 9.5%.
In early November 2017 the Group completed the refurbishment of 57,000 sq. ft. of office space at Two Dockland Central ("2DC") on schedule and within budget. Upon completion, the 73,000 sq. ft. building was 77% let with terms agreed for the ground floor which, if contracted, would take occupancy in the building to 95%. Upon completion the project delivered a profit on cost of over 35% (post stamp duty change and excluding finance costs) and when fully let the yield on cost is expected to exceed 7%.
Committed development schemes
At 30 September 2017, the Group had committed schemes under way at three properties which will deliver c. 247,000 sq. ft. of new and refurbished Grade A office space by the end of 2018. 23% of this office space was pre-let as at period end.
-- Two Dockland Central ("2DC"): as stated above, the refurbishment was successfully completed in early November 2017
-- 1 Sir John Rogerson's Quay ("1SJRQ"): construction work continues and the scheme remains on track to complete in mid-2018. Preliminary discussions with potential tenants are on-going
-- Hanover Building (being renamed "2WML"): the office tenant (BNY Mellon) left the building at the end of March 2017 and the retail tenant left in November 2017: the redevelopment and extension of the building is expected to complete in late 2018
At 30 September 2017 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (227,000 sq. ft.) in the committed developments 1SJRQ, 2WML plus the unlet office space in the completed 1WML of EUR53.16psf and were assuming an average yield of 4.81% upon completion: based on these assumptions they expect a further c. EUR39m of development profit (ex. finance costs) to be realised through the completion and letting of the unlet space in these schemes. A 25-basis point movement in yields across the unlet space would make c. EUR10-15m of difference to the development profits, and a EUR2.50psf change in estimated rental value ("ERV") would result in a c.EUR10m difference.
Please see further details on the development schemes below:
Total
Net
internal
area Est. total Expected
("NIA") cost practical
post Full (incl. Office completion
completion purchase Capex/Est. land) ERV psf ("PC")
Sector (sq. ft.) price capex EURpsf ERV (1) (1) Date
------------ -------- ------------ ----------- ----------- ---------- ---------- ---------------- -----------
Schemes completed in 6 months to 30 Sept 17
---------------------------------------------------------------------------------------------------------------------
124k office
8k
retail(2)
7k
reception Completed
14 resi. EUR53m EUR547psf EUR7.5m EUR52.28psf in August
1WML Office units EUR24m (3) (3) (4) (5) (4) 2017
------------ -------- ------------ ----------- ----------- ---------- ---------- ---------------- -----------
Schemes completed post 30 Sept 17
---------------------------------------------------------------------------------------------------------------------
Completed
Two in
Dockland 73k (7) EUR11m EUR760psf November
Central Office office EUR46m (8) (9) EUR4.0m EUR50.20psf(10) 2017
------------ -------- ------------ ----------- ----------- ---------- ---------- ---------------- -----------
197k
office
8k retail
7k
Reception
14 resi. EUR64m
Total completed units EUR70m (11) EUR11.5m
---------------------- ----------- ----------- ----------- ---------- ---------- ---------------- -----------
Committed schemes
---------------------------------------------------------------------------------------------------------------------
59k office EUR680psf
2WML Office 12k gym EUR21m EUR22m (4) EUR3.2m EUR51.23psf late 2018
------------ -------- ------------ ----------- ----------- ---------- ---------- ---------------- -----------
115k office EUR639psf
1SJRQ Office 5k retail EUR18m EUR58m (4) EUR6.5m EUR54.58psf mid 2018
------------ -------- ------------ ----------- ----------- ---------- ---------- ---------------- -----------
174k
office
17k
retail/gy
Total committed m EUR39m EUR80m EUR13.8m
---------------------- ----------- ----------- ----------- ---------- ---------- ---------------- -----------
1. Per C&W valuation at 30 Sept 2017
2. Incl. 1k sq. ft. basement store
3. Hibernia est. all in cost of 1WML on 100% basis is EUR77m (i.e. EUR24m all-in land cost plus EUR53m total capex). In the prior year, Hibernia's financial accounts show that the cost of acquiring 100% of 1WML was EUR36m which incl. the vendor's 50% share of capex spent to date of acquisition of EUR13m. There was c.EUR28m of capex remaining (based on est. total capex of EUR53m) to be spent at date of acquisition. Therefore, the total cost of the project is EUR77m (EUR36m + EUR28m + EUR13m = EUR77m)
4. Office demise only 5. Commercial (incl. reception/townhall) and residential 6. Assuming 6% stamp duty and no finance costs 7. 57k sq. ft. refurbished out of total 73k sq. ft. 8. EUR9.4m net of dilapidation received 9. Est. total cost psf is net of dilapidations 10. For entire 73k sq. ft. EUR50.26psf for refurbished space only 11. EUR62.4m net of dilapidations received at 2DC
Development pipeline
In total there are five schemes in the future pipeline (treating Clanwilliam Court and Marine House as one project) which, if undertaken, would deliver and estimated 660,000 sq. ft. of high quality office space upon completion. Please see further details on the development pipeline below:
Current
NIA NIA post Full
(sq. completion purchase
Sector ft.) (sq. ft.) price Comments
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Near term
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Cumberland Office nil 50k(1) EUR0m
Place (2) * Full planning in place
(front
block)
* Likely commencement in 2018 once existing
developments exposure reduced
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Total near
term nil c.50k EUR0m
---------------------------------- -------- ----------- -------- ------------------------------------------------------------
Longer
term
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Gateway Logistics/Office 14.1 115k EUR10m
acres office * Strategic transport location
(3) (4)
* Redevelopment potential subject to planning
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Blocks Office 135k 190k EUR80m
1, 2 & * Refurbishment and/or redevelopment opportunity post
5 2021/22
Clanwilliam
Court and
Marine * Potential to add up to 40% to exiting NIA across all
House four blocks and create an office cluster similar to
the Windmill Quarter
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Harcourt Office 117k on 277k EUR72m
Square 1.9 * Planning in place for 277k sq. ft. redevelopment
acres
* Lease to OPW until Dec 22
* Site offers potential to form cluster of office
assets and facilities
* Working to refine/improve the scheme
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
One Office 22k >28k EUR20m
Earlsfort * Planning permission for two extra floors
Terrace
* Also potential for redevelopment as part of the wider
Earlsfort Centre scheme
-------------- ------------------ -------- ----------- -------- ------------------------------------------------------------
Total longer
term 274k 610k EUR182m
---------------------------------- -------- ----------- -------- ------------------------------------------------------------
1. 49k sq. ft. of office and 1k sq. ft. retail/reception
2. EUR51m (incl. costs) paid for existing block which was refurbished and completed in September 2016. No land value attributed to new block at acquisition
3. Currently 178k sq. ft. of industrial/logistics
4. Planned new offices of c.115k sq. ft. plus potential to add a further c.130k sq. ft. of offices
Asset management
In the six months to 30 September 2017 we added EUR1.9m to contracted rents through lettings, EUR1.2m net of lease expiries and surrenders, increasing the contracted rent roll by 2.5% to EUR49.5m. Since period end we have added a further EUR1.3m through three further office lettings to the ESB and Pinsent Mason over 18,500 sq. ft. and a retail letting to Spar: net of surrenders the increase in contracted rent was c. EUR1.0m.
Summary of letting activity in the period
-- Offices: Three new lettings of 29,000 sq. ft. generating EUR1.7m of incremental new annual rent. The weighted average periods to break and expiry for the new leases were 11.3 years and 20.0 years, respectively. At present, we have eight outstanding rent reviews over EUR1.3m of contracted income under negotiation
-- Residential: 293 of the Company's 313 apartments are located in Dundrum and, in the period, average rents achieved by the Company for two - bed apartments in Dundrum were EUR1,773 per month vs average two - bed passing rents of EUR1,709 per month. Letting activity and lease renewals at Dundrum generated incremental gross annual rent of EUR58,720 in the period (new leases signed on 40 apartments and leases renewed on 8 apartments). The total net income from the Dundrum residential properties during the period was EUR2.6m representing a net to gross margin in excess of 80%. Total contracted residential income reduced by EUR300k as the Company obtained vacant possession of Cannon Place to carry out remedial works.
As set out below, we are in discussions with potential tenants in a number of buildings where we have vacant space.
Key asset management highlights
See also 'Developments and Refurbishments' section above for further details.
Flexible workspace arrangement
The flexible workspace arrangement with Iconic Offices ("Iconic") in 21,000 sq. ft. of Block 1 Clanwilliam Court is trading well, with 87% of the workstations occupied and 72% of the available co-working memberships contracted as at the end of September 2017 and full capacity expected to be reached on both during November. Revenue and profitability are materially ahead of budget both for the quarter ended September 2017 and since operations commenced in April 2017.
1WML, South Docks
The office development reached practical completion in late August 2017, and shortly afterwards Core Media agreed to take 24,000 sq. ft. on a 21-year lease (six month rent free) at an initial rent of EUR1.4m per annum. They joined Informatica which pre-leased the top two floors totalling 36,000 sq. ft. in March 2017 on a 17-year lease (six month rent free) at an initial rent of EUR2.1m per annum. As at 30 September 2017 the building was c. 50% let and since 30 September 2017 this has increased to 57% following a letting to international law firm Pinsent Masons, which has taken 10,000 sq. ft. on the ground floor on a 20-year lease (five months rent free) at an initial rent of EUR0.6m per annum. Discussions continue with potential occupiers regarding the remaining vacant space.
In November 2017 we agreed a 20-year lease (12 month rent free) with Spar to move from their current location in 11,500 sq. ft. in 2WML to occupy the 8,000 sq. ft. retail unit in 1WML. Spar will pay an initial rent of EUR0.2m per annum (EUR20psf). A surrender premium of EUR0.3m will be paid to the tenant to cover the costs of this move.
Cannon Place, D4
The tenants in the 16 units have moved out to enable some remedial works to be carried out. The programme is expected to be completed by the end of December 2017.
Central Quay, South Docks
A ground floor office suite of c. 3,000 sq. ft. was let to Fragomen, a firm of solicitors, in June 2017 on a 10-year lease. Inspections are ongoing regarding the remaining vacant space on the ground floor (5,000 sq. ft.) and the third floor (11,000 sq. ft.).
Chancery, D8
Terms have been agreed with a tenant to lease the vacant fourth floor (6,000 sq. ft.). The remainder of the building is fully let.
Clanwilliam Court, Block 2 and Marine House, D2
In October 2017, the ESB leased the ground floor of Block 2 and second floor of Marine House (8,500 sq. ft. in total) on leases which run until 2020/21 (i.e. these terminate concurrently with other occupiers in the buildings) at a total rent of EUR0.4m per annum.
Two Dockland Central, IFSC
The repositioning works completed in early November (see further detail above). As at 31 March 2017, 66% of the 57,000 sq. ft. under refurbishment was pre-let to HubSpot and ENI. As at 30 September 2017 this had increased to 70% following the pre-lease of a suite on the top floor to Fountain Healthcare at a rent of EUR55psf. Terms have been agreed with an occupier for the ground floor space which, if completed, would mean 93% of the refurbished space is let and 95% of the building overall.
Other completed assets
The remaining completed properties in the portfolio are close to full occupancy. The average period to rent review or lease expiry for the acquired "in-place" office portfolio (not including recently completed developments) is 2.9 years: the team is focused on the upcoming lease events and working closely with our tenants.
Financial results and position
As at 30 September 31 March 2017 Movement
2017
------------------------ ------------- -------------- ---------
IFRS NAV - cent per
share 155.9 147.9 +5.4%
------------------------- ------------- -------------- ---------
EPRA NAV(1) - cent
per share 155.3 146.3 +6.2%
Proforma IFRS NAV
(1) (2) - cent per
share 148.1 147.9 +0.1%
------------------------- ------------- -------------- ---------
Proforma EPRA NAV
(1) (2) - cent per
share 147.5 146.3 +0.8%
------------------------- ------------- -------------- ---------
Net debt (1) EUR181.0m EUR155.3m +16.6%
------------------------- ------------- -------------- ---------
Group LTV (1) 14.3% 13.3% +7.5%
------------------------- ------------- -------------- ---------
Financial period ended 30 September 30 September Movement
2017 2016
Profit before tax
for the period EUR70.7m EUR32.4m +118.0%
------------------------- ------------- -------------- ---------
EPRA earnings(1) EUR9.0m EUR8.0m +13.1%
------------------------- ------------- -------------- ---------
IFRS EPS 10.2 cent 4.7 cent +117.0%
------------------------- ------------- -------------- ---------
Diluted IFRS EPS 10.2 cent 4.7 cent +117.0%
------------------------- ------------- -------------- ---------
EPRA EPS (1) 1.3 cent 1.2 cent +8.3%
------------------------- ------------- -------------- ---------
Interim dividend per
share(1) (DPS) 1.1 cent 0.75 cent +46.7%
------------------------- ------------- -------------- ---------
1. An alternative performance measure ("APM"). The Group uses a number of such financial measures to describe its performance which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see the Alternative Performance Measures Section at the back of this report.
2. Based on valuers' assessment of impact of increase in Stamp Duty rate on Hibernia's portfolio if it had been in place on 30 September 2017 (see Note 32.a of condensed consolidated interim financial statements).
The key drivers of EPRA NAV per share, which increased 9.0 cent from 31 March 2017 were:
- 9.0 cent per share from the revaluation of the property portfolio, including 2.6 cent per share in relation to development properties: the yield compression seen in the market helped the value of the Group's more prime assets
- 1.3 cent per share from EPRA earnings in the period - Payment of the FY17 final dividend, which decreased NAV by 1.45 cent per share
Net debt increased by EUR25.7m to EUR181.0m (LTV: 14.3%). Almost all of the increase in net debt related to development or refurbishment work with a further c. EUR0.8m due to maintenance expenditure.
EPRA earnings for the period were EUR9.0m, up 13.1% compared to the same period in the prior year. The key driver of the increase was rental income from new lettings and a full period of ownership for Blocks 1, 2 & 5 Clanwilliam Court (which were acquired in July 2016). Administrative expenses (excluding performance related payments) were EUR6.5m (Sept 2016: EUR6.3m). Performance related payments were EUR2.2m (Sept 2016: nil): the principal amount of this related to relative performance fees accrued based on the Group's outperformance of the MSCI/IPD Ireland index in the six months to September 2017. No such accruals were made in respect of the period ended September 2016.
Profit before tax for the period was EUR70.7m, an increase of 118.0% over the same period last year mainly due to greater revaluation gains. The stamp duty increase from 2% to 6% occurred in early October 2017 and consequently the impact is not reflected in the financial statements as at 30 September 2017. For further details on the estimated impact had this increase been effective as at 30 September 2017, please see below.
The Group's investment properties were valued by CBRE as at 31 March 2017. Cushman & Wakefield ("C&W") was appointed by Hibernia in September 2017 following a tender process after a rotation of the Group's retained valuers was considered and approved by the Audit Committee.
Financing and hedging
As at 30 September 2017, the Group's net debt was EUR181.0m, a loan to value ratio ("LTV") of 14.3%, having increased from a net debt position of EUR155.3m (LTV of 13.3%) at 31 March 2017 primarily due to capital expenditure on developments.
The Group's main debt facility is a EUR400m revolving credit facility ("RCF") with Bank of Ireland, Barclays and Ulster Bank which matures in November 2020. The Group also has a EUR44.2m non-recourse debt facility with Deutsche Bank for Windmill Lane (the "1WML facility") which matures in June 2019 and is currently EUR17.1m drawn. Since mid-2017 the Group has been using the RCF to fund capital expenditure on 1WML and it remains its intention to repay and cancel the 1WML facility in early 2018 once early repayment penalties expire, given the cash and undrawn facilities currently available to the Group and the relatively high cost of the 1WML facility.
Cash and undrawn facilities as at 30 September 2017 totalled EUR263.2m or EUR150.0m net of committed capital and the intended repayment of the 1WML facility. Assuming repayment of the 1WML facility and the investment of the remaining RCF funds in property, the LTV, based on property values at 30 September 2017, would be c. 27.0%. The Group's through-cycle leverage target remains 20 - 30% LTV.
The Group has a policy of fixing or hedging the interest rate risk on the majority of its drawn debt. As at 31 March 2017 it had interest rate caps and swaptions with 1% strike rates in place covering the interest rate risk on EUR100m of the RCF drawings over the period until November 2020 (when the RCF expires). In September 2017 the Group entered further interest rate caps and swaptions, again with 1% strike rates, for the period from November 2017 to November 2021: initially these new instruments cover the interest rate risk on a further EUR50m of RCF drawings, rising to EUR100m in February 2018, at which point EUR200m of RCF drawings will be covered. The interest rate exposure of the 1WML facility has also been hedged using an interest rate cap with a 1% strike rate.
Dividend
The total dividend paid by the Group in respect of the year ended March 2017 was 2.2 cent per share (2016: 1.5 cent). Consistent with its policy of paying an interim dividend totalling 30-50% of the total regular dividends paid in respect of the prior year, the Board has declared an interim dividend of 1.1 cent per share (2016: 0.75 cent). All of this dividend will be a Property Income Distribution ("PID") in respect of the Group's property rental business as defined under the Irish REIT legislation. The interim dividend will be paid on 25 January 2018 to shareholders on the register as at 4 January 2018.
Hibernia's Dividend Reinvestment Plan ("DRIP") remains in place, allowing shareholders to instruct Link, the Company's registrar, to reinvest dividend payments by the purchase of shares in the Company. The terms and conditions of the DRIP and information on how to apply are available on the Group's website.
ESTIMATED IMPACT OF CHANGE IN STAMP DUTY
In the 2018 Budget the Irish Government increased stamp duty on Irish commercial property transactions from 2% to 6%, with effect from 11 October 2017. This has led to an immediate one-off reduction in values of commercial investment properties of c. 4%. It remains to be seen what impact, if any, there will be on the investment market in the longer term.
Cushman & Wakefield, the Group's independent valuers, have calculated that the reduction in the value of the Group's property portfolio had the stamp duty change been in place on 30 September 2017 would have been EUR53.7m. This represents a 4.2% reduction in the value of the Group's portfolio as at 30 September and a 4.7% reduction in the value of the Group's office portfolio, including developments. The reduction in the value of the office portfolio is greater than 4% because of the residual methodology used in assessing the Group's development assets: the current value of an asset under development is calculated by reference to the estimated gross development value ("GDV") of the asset when completed less the expenditure required to complete and a developers' profit margin. The percentage reduction in the GDV as a result of the stamp duty is magnified in the percentage reduction in the current value of the site given that this is generally less than the GDV. Secondly, if the site was sold during development, stamp duty would also need to be charged on the value of the site: this stamp duty "double count" also increases the impact of the stamp duty increase on the value of development assets, though it will unwind upon completion of the development.
The impact on the EPRA NAV per share of the Group had the change been in effect on 30 September 2017 is estimated to be a reduction of approximately 7.8c per share from 155.3c to 147.5c, a 5.0% reduction. The stamp duty change has no impact on current distributable reserves and dividends as it relates to unrealised gains and losses on the portfolio.
Selected portfolio information
1. Top 10 "in-place" office occupiers by contracted rent and % of contracted "in-place" office rent roll
Contracted
Rent EUR
Top 10 Tenants 'm % Sector
--- ---------------------------- ------------ ------ --------------------
1 Office of Public Works 6.6 15.9 Government
Twitter International
2 Company 5.1 12.3 TMT
Banking and Capital
3 Bank of Ireland 2.9 6.9 Markets
4 Informatica Ireland EMEA 2.1 5.1 TMT
Banking and Capital
5 DEPFA Bank plc 2.0 5.0 Markets
6 Travelport Digital 1.8 4.4 TMT
7 Core Media 1.6 3.9 TMT
Banking and Capital
8 BNY Mellon 1.6 3.9 Markets
9 ComReg 1.6 3.9 Government
10 Electricity Supply Board 1.5 3.6 Government
--- ---------------------------- ------------ ------ --------------------
Top ten total 26.8 64.9
Rest of portfolio 14.5 35.1
--- ---------------------------- ------------ ------ --------------------
Total contracted "in-place"
office rent 41.3 100.0
--- ---------------------------- ------------ ------ --------------------
2. "In-place" office contracted rent by business sector
Sector EUR 'm %
TMT(12) 15.7 38.0
Government 10.3 25.1
Banking & Capital
Markets 9.8 23.6
Professional Services 3.4 8.4
Other 1.4 3.3
Insurance & Reinsurance 0.7 1.6
Total 41.3 100.0
------------------------- ------- ------
3. "In-place" office contracted rent and WAULT progression
Sep-16 Mar-17 Sep-17
----------------------- --------- ----- --------- ---- ---------
All office contracted
rent EUR40.2m +5% EUR42.1m +3% EUR43.5m
----------------------- --------- ----- --------- ---- ---------
In-place office
contracted rent EUR40.2m (5%) EUR38.0m +9% EUR41.3m
----------------------- --------- ----- --------- ---- ---------
In-place office
WAULT (1) 5.9 yrs +14% 6.7yrs +3% 6.9 yrs
----------------------- --------- ----- --------- ---- ---------
In-place office
vacancy (2) 6% 3% 10% (3)
----------------------- --------- ----- --------- ---- ---------
Analysis excludes agreement with Iconic Offices at Clanwilliam
1. To earlier of break or expiry
2. By net lettable office areas. Office area only i.e. excl. retail, basement, gym, townhall etc.)
3. Following completion of 1WML
Principal Risks and Uncertainties
There are a number of risks and uncertainties which could have a material 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 36 to 41 of the 2017 Annual Report, are materially 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
Budget 2018 introduced an increase in the rate of stamp duty on Irish commercial property transactions from 2% to 6% with effect from 11 October 2017 and this is expected to have a one-off negative impact on asset values (Note 32 of the Condensed Group Financial Statements), though yield compression in the market since 31 March 2017 may negate this for pima assets. It remains to be seen if the change has any impact on the investment market in the longer term. Otherwise, tenant demand remains strong and the Group is focusing particularly on the delivery of its development schemes: in the first half of the financial year it has made a number of new lettings.
Market risks: weakening economy/under performance of Dublin property market
External risks from Brexit and the policy direction of the US presidential administration have increased risks but the Irish and Dublin economies continue to grow strongly: the Department of Finance expects Irish GDP growth of 4.3% in 2017 and 3.5% in 2018. The Group has continued to work to extend its WAULT which now stands at 6.9 years for the in-place office portfolio, up from 6.7 years at 31 March 2017. This reduces vacancy risks in a market downturn.
Development risks: poor execution of development projects
An experienced Head of Project Management was appointed in June 2017 to support the Director of Development. During the period, the Group has completed 1WML, consisting of 124k sq.ft. which is now 57% let, with discussions continuing regarding the remaining space. As at 30 September 2017, the Group had three committed schemes totalling 231k sq. ft.: 2DC (57k sq.ft.) completed in November 2017, and the remaining schemes are expected to complete at the end of 2018.
Investment risks: poor/mis-timed investment or sale or asset allocation
The Group now has a portfolio valued at over EUR1.2 billion and has slowed its rate of acquisition, with no material new acquisitions made since 31 March 2017. Looking ahead, the Group's net acquisition spend is likely to continue to be relatively modest. The Group has built a balanced portfolio comprising 29 properties since commencement of operations. As at 30 September 2017 the largest single asset represented 11% of the portfolio by value (11% as at March 2017). The portfolio's top 10 tenants account for 65% of the contracted rent roll as at 30 September 2017 (67% as at March 2017).
Asset management risks: poor asset management leading to underperformance
The Group continues to work to improve its buildings and strengthen tenant relationships and increase the level of service through its building management company.
Finance risks: inappropriate capital structure or lack of available funding
At 30 September 2017 the Group's indebtedness remained relatively low with a LTV ratio of 14.3% (31 March 2017: 13.3%). Committed capital expenditure in the next 18 months is expected to increase the LTV ratio to c. c.20%. At 30 September 2017 the Group had cash and undrawn facilities totalling EUR263m, or EUR150m net of committed capital expenditure and the anticipated repayment of the WML facility (31 March 2017: EUR289m or EUR150m). The Group continues to monitor its capital requirements closely. No covenant breaches have occurred in the period.
People risks: Loss of key staff and/or motivation
There have been no changes to the risks in this area. The Remuneration Committee continues to focus on plans for employee incentivisation post November 2018 when the current arrangements expire.
Regulatory & tax risk: adverse changes or failure to comply with legislation including the REIT regime
As mentioned above, Budget 2018 introduced an increase in the rate of stamp duty on Irish commercial property transactions from 2% to 6% with effect from 11 October 2017 which is expected to have a one-off negative impact on commercial property values.
Business interruption risks: adverse external event
We believe the risk of cyber-attack continues to increase for all businesses in Ireland though we have taken steps to address this through improving our IT security measures. Other business interruption risks remain stable.
Directors' Responsibilities Statement
Each of the Directors, whose names appear on page 64 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(13) 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 2017 to 30 September 2017 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 2017 to 30 September 2017 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
15 November 2017
INDEPENT REVIEW REPORT TO HIBERNIA REIT PLC
We have been engaged by Hibernia REIT p.l.c. (the "company") to review the condensed consolidated set of financial statements included in the half-yearly financial report for the six months ended 30 September 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related notes 1 to 32 ("the condensed set of financial statements"). 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 condensed consolidated set of financial statements.
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" issued by the International Auditing and Assurance Standards Board ("ISRE 2410"). Our work has been undertaken so that we might state to the company those matters we are required to state to them 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 in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.
As disclosed in note 2a Statement of Compliance, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly 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 condensed set of financial statements in the half-yearly financial report based on our review.
Scope of 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.
INDEPENT REVIEW REPORT TO HIBERNIA REIT PLC (Continued)
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.
Deloitte
Chartered Accountants and Statutory Audit Firm
Dublin
15 November 2017
Condensed Consolidated Income Statement
For the six months ended 30 September 2017
Six months
ended Six months ended
30 September 30 September
2017 Unaudited 2016 Unaudited
Notes EUR'000 EUR'000
Total revenue 7 25,928 18,306
---------------- -----------------
Rental income 8 23,579 18,306
Net property expenses 9 (1,715) (1,620)
---------------- -----------------
Net rental income 21,864 16,686
Revaluation of investment
properties 18 61,626 24,342
Other gains and (losses) 10 (1,082) 379
---------------- -----------------
Total income after revaluation
gains and losses 82,408 41,407
---------------- -----------------
Expense
Performance related
payments 5 (2,179) -
Administration expenses 11 (6,501) (6,279)
---------------- -----------------
Total operating expenses (8,680) (6,279)
---------------- -----------------
Operating profit 73,728 35,128
---------------- -----------------
Finance income 13 4 6
Finance expense 13 (3,085) (2,725)
---------------- -----------------
Profit before tax 70,647 32,409
Income tax 14 (43) (113)
---------------- -----------------
Profit for the period 70,604 32,296
---------------- -----------------
Earnings per share
Basic earnings per
share (cent) 16 10.2 4.7
---------------- -----------------
Diluted earnings per
share (cent) 16 10.2 4.7
---------------- -----------------
EPRA earnings per share
(cent) 16 1.3 1.2
---------------- -----------------
Diluted EPRA earnings
per share (cent) 16 1.3 1.2
---------------- -----------------
The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.
Condensed Consolidated statement of comprehensive income
For the six months ended 30 September 2017
Six months ended Six months ended
30 September 30 September
2017 Unaudited 2016 Unaudited
Notes EUR'000 EUR'000
Profit for the period 70,604 32,296
----------------- -----------------
Other comprehensive income, net of
income tax
Items that will not be reclassified subsequently to
profit or loss:
Gain on revaluation of owner
occupied property 17 542 -
----------------- -----------------
Items that may be reclassified subsequently to profit
or loss:
Net fair value loss on hedging
instruments entered into for
cash flow hedges (36) (69)
----------------- -----------------
Total other comprehensive income 506 (69)
----------------- -----------------
Total comprehensive income for
the period attributable to owners
of the Company 71,110 32,227
----------------- -----------------
The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.
Condensed Consolidated Statement of Financial Position
As at 30 September 2017
30 September 31 March 2017
2017 Audited
Unaudited
Notes EUR'000 EUR'000
Assets
Non-current assets
Property, plant and equipment 17 5,391 4,801
Investment properties 18 1,265,607 1,167,387
Other financial assets 19 375 267
Trade and other receivables 20 6,620 8,536
------------- --------------
Total non-current assets 1,277,993 1,180,991
------------- --------------
Current assets
Trade and other receivables 20 9,116 10,108
Cash and cash equivalents 18,624 18,148
------------- --------------
27,740 28,256
Non-current assets classified
as held for sale 21 385 385
------------- --------------
Total current assets 28,125 28,641
------------- --------------
Total assets 1,306,118 1,209,632
------------- --------------
Equity and liabilities
Capital and reserves
Issued capital and share
premium 22 687,591 678,110
Other reserves 23 4,920 9,759
Retained earnings 24 386,533 325,983
------------- --------------
Total equity 1,079,044 1,013,852
------------- --------------
Non-current liabilities
Financial liabilities 25 180,990 171,138
------------- --------------
Total non-current liabilities 180,990 171,138
------------- --------------
Current liabilities
Financial liabilities 25 17,096 -
Trade and other payables 26 28,988 24,642
------------- --------------
Total current liabilities 46,084 24,642
------------- --------------
Total equity and liabilities 1,306,118 1,209,632
------------- --------------
IFRS NAV per share (cents) 27 155.9 147.9
------------- --------------
EPRA NAV per share (cents) 27 155.3 146.3
------------- --------------
Diluted IFRS NAV per share
(cents) 27 155.2 146.3
------------- --------------
The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.
.
Condensed Consolidated Statement of Changes in Equity
For the period from 1 April 2016 to 30 September 2017
Share Share Retained Other
Notes Capital Premium earnings reserves Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at 1 April
2016 68,125 604,273 218,040 6,136 896,574
Total comprehensive income for the period
ended 30 September 2016
Profit for the period - - 32,296 - 32,296
Total other comprehensive
income - - - (69) (69)
--------- --------- ---------- ---------- ----------
68,125 604,273 250,336 6,067 928,801
Transactions with owners of the Company,
recognised directly in equity
Dividends - - (5,484) - (5,484)
Share issue costs - - (19) - (19)
Share based payments 420 5,049 - (4,810) 659
--------- --------- ---------- ---------- ----------
Balance at 30 September
2016 68,545 609,322 244,833 1,257 923,957
--------- --------- ---------- ---------- ----------
Total comprehensive income for
the period
ended 31 March 2017
Profit for the period - - 86,290 - 86,290
Total other comprehensive
income - - - 150 150
--------- --------- ---------- ---------- ----------
68,545 609,322 331,123 1,407 1,010,397
Transactions with owners of the Company,
recognised directly in equity
Dividends - - (5,140) - (5,140)
Issue of ordinary
shares for cash - - - - -
Share issue costs - - - - -
Share based payments - 243 - 8,352 8,595
--------- --------- ---------- ---------- ----------
Balance at 31 March
2017 68,545 609,565 325,983 9,759 1,013,852
--------- --------- ---------- ---------- ----------
Total comprehensive income for the period
ended 30 September 2017
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)
Share issue costs - - (14) - (14)
Share based payments 690 8,791 - (5,345) 4,136
--------- --------- ---------- ---------- ----------
Balance at 30 September
2017 unaudited 69,235 618,356 386,533 4,920 1,079,044
--------- --------- ---------- ---------- ----------
The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.
Condensed Consolidated Statement of Cash flows
For the six-month period 1 April 2017 to 30 September 2017
Six months Six months Financial
ended ended year ended
30 September 30 September 31 March
Notes 2017 2016 2017
Unaudited Unaudited Audited
EUR'000 EUR'000 EUR'000
Cash flows from operating activities
Profit for the financial period 70,604 32,296 118,586
Adjusted for non-cash movements:
Revaluation of investment properties (61,626) (24,342) (103,525)
Other gains and losses 9 1,082 (86) 380
Share based payments 23c 3,069 659 8,874
Prepaid remuneration expense 11 2,222 2,222 4,444
Depreciation 11 128 77 207
Property income paid in advance 1,067 4,986 5,118
Finance expense 13 3,081 2,719 5,661
Income tax 14 43 113 450
-------------- -------------- -------------
Operating cash flow before movements
in working capital 19,670 18,644 40,195
(Increase)/decrease in trade
and other receivables (378) 3,453 2,106
Increase/(decrease) in trade
and other payables 2,337 1,830 (1,805)
-------------- -------------- -------------
Net cash flow from operating
activities 21,629 23,927 40,496
-------------- -------------- -------------
Cash flows from investing activities
Purchase of fixed assets 17 (176) (12) (225)
Cash paid for/expended on investment
property 28 (34,122) (83,555) (137,200)
Proceeds from the sale of non-current
assets classified as held for
sale - 9,135 9,534
Income tax paid - (1) (367)
Finance expenses paid (2,616) (2,173) (4,511)
-------------- -------------- -------------
Net cash flow absorbed by investing
activities (36,914) (76,606) (132,769)
-------------- -------------- -------------
Cash flow from financing activities
Dividends paid 24 (10,040) (5,484) (10,624)
Borrowings drawn 26,004 51,904 97,877
Derivatives premium (189) - -
Share issue costs 24 (14) (19) (19)
-------------- -------------- -------------
Net cash inflow from financing
activities 15,761 46,401 87,234
-------------- -------------- -------------
Net increase/(decrease) in cash
and cash equivalents 476 (6,278) (5,039)
-------------- -------------- -------------
Cash and cash equivalents start
of financial period 18,148 23,187 23,187
Increase/(decrease) in cash and
cash equivalents 476 (6,278) (5,039)
-------------- -------------- -------------
Net cash and cash equivalents
at end of financial period 18,624 16,909 18,148
-------------- -------------- -------------
The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.
Notes to the condensed consolidated interim financial statements
1. General Information
Hibernia REIT plc, the "Company", together with its subsidiaries and associated undertakings as detailed in Note 30 (the "Group"), is engaged in property investment and development (primarily office) in the Dublin market with a view to maximising its shareholders' returns.
The Company is a public limited company and is incorporated and domiciled in Ireland. The address of the Company's registered office is South Dock House, Hanover Quay, Dublin, D02 XW94, Ireland.
The Ordinary Shares of the Company are listed on the primary listing segment of the Official List of the Irish Stock Exchange (the "Irish Official List") and the premium listing segment of the Official List of the UK Listing Authority (the "UK Official List" and, together with the Irish Official List, the "Official Lists") and are traded on the regulated markets for listed securities of the Irish Stock Exchange and the London Stock Exchange plc (the "London Stock Exchange").
2. Basis of preparation
a) Statement of compliance and basis of preparation
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 2017 are unaudited but have been reviewed by the independent auditor whose report is set out on pages 19 to 20 of this report. The summary financial statements for the year ended 31 March 2017 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 which 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 and in compliance with Section 340(4) of that Act.
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 2017 ("The Annual Report 2017") are available upon request from the Company Secretary or from www.hiberniareit.com. The financial statements for the financial year ended 31 March 2017 have been filed in the Companies Registration Office.
b) Functional and presentation currency
These condensed consolidated interim financial statements are presented in Euro (EUR), which is the Company's functional currency and the Group's presentation currency.
c) Basis of consolidation
The condensed consolidated interim financial statements have been prepared on a going concern basis, in accordance with IFRS and the IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union and the Companies Act 2014. The Group financial statements therefore comply with Article 4 of the EU IAS Regulation.
The condensed consolidated interim financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings and financial instruments that are measured at fair value at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
d) 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 this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 30 September 2017 of EUR19m (31 March 2017: EUR18m), is generating positive operating cash--flows and, as discussed in Note 25, has in place debt facilities with an average period to maturity of 3.2 years and an undrawn balance of EUR245m at 30 September 2017 (31 March 2017: EUR289m). The Group has assessed its liquidity position and there are no reasons to expect that the Group will not be able to meet its liabilities as they fall due for the foreseeable future.
e) Significant judgements
The preparation of the financial statements may require management to exercise judgement in applying the Group's accounting policies. The following are the significant judgements and key estimates used in preparing these financial statements:
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these condensed consolidated interim financial statements is determined on such a basis, except for share based transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
1. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
2. 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
3. Level 3 inputs are unobservable inputs for the asset or liability.
Valuation basis of investment properties
- All investment properties as at 30 September 2017 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 valuers have determined that the highest and best use of this property would be the demolition of the existing building and the completion of a new development on the site once vacant possession is achieved. It is therefore valued on this basis after the expiry of the current expiry in December 2022. It is the Directors' intention to pursue the redevelopment of this property when the existing lease has expired.
-- Cannon Place apartment building has been valued on a break up basis which is the highest and best use for this building.
- Block 3, Wyckham Point: This property is held for long-term property rental and was developed on this basis. The units comprising this property were completed on a phased basis by the Group during 2015. VAT was payable both on the acquisition and on the construction costs which were treated as irrecoverable and recognised as part of the capital costs of the project. If this property is sold within five years of completion, i.e. before mid-2020, the Group would be obliged to charge VAT on the sale but would be entitled to a recovery of the VAT incurred on the construction and acquisition costs on an apportioned basis according to the VAT life of the building. As this property is not intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the valuer's valuation of this asset is deemed necessary.
Provisions for taxes
Where properties have been significantly developed or redeveloped by the Group, if the asset was to be sold within three years of completion, the Group would be liable to tax on any profits arising on the disposal under S.705G Taxes Consolidation Act 1997. No provision is currently being made for potential deferred tax on revaluations on these properties that have been significantly developed, since in the judgement of the Directors, these assets are held for longer term rental income and capital appreciation and therefore they will not be sold within the three-year period.
f) Key estimates
Valuation of investment properties
The Group's investment properties are held at fair value and were valued at 30 September 2017 by the external valuer Cushman and Wakefield ("C&W") a firm employing qualified valuers in accordance with the appropriate sections of the 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"). It follows that these valuations are compliant with International Valuation Standards and therefore also with International Financial Reporting Standards. Further information on the valuations and the sensitivities is given in Note 18. The Group's investment properties were valued by CBRE as at 31 March 2017. C&W was appointed by Hibernia in September 2017 following a tender process after a rotation of the Group's retained valuers was considered and approved by the Audit Committee.
The Board conducts a detailed review of each property valuation to ensure that appropriate assumptions have been applied. Property valuations are complex and involve data which is not publicly available and a degree of judgement. The valuation is based upon the key assumptions of estimated rental values and market based yields. The approach to developments and refurbishments is on a residual basis and factors such as the assumed timescale, the assumed future development cost and an appropriate finance and/or discount rate are used to determine the property value together with market evidence and recent comparable properties where appropriate. In determining fair value, the valuers refer to market evidence and recent transaction prices for similar properties.
The Directors must be satisfied that the valuation of the Group's properties is appropriate for inclusion in the accounts. The fair value of the Group's properties is based on the valuation provided by C&W. This valuation is based on future cashflows from rental income both for the current lease period and future estimated rental values.
In accordance with the Group's policy on lease incentives, the valuation provided by C&W is adjusted by the fair value of the rental income accruals ensuing from the recognition of these incentives. The total reduction in the external valuer's investment property valuation in respect of these adjustments was EUR5.2m (Note 18) (31 March 2017: EUR4.1m).
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 2017.
g) Change of stamp duty rates
These condensed consolidated interim financial statements are prepared based on market conditions in place at 30 September 2017. Budget 2018 introduced an increase in the rate of stamp duty on Irish commercial property transactions from 2% to 6% with effect from 11 October 2017. Note 32.a analyses the estimated impact of this increase on the valuation of the Group's investment properties at 30 September 2017, had this change been in place at that date.
3. Application of new and revised International Accounting Standards (IFRS)
The Group has not adopted any new or amended accounting pronouncements which have impacted on the half yearly report.
Upcoming IFRS implementations
IFRS 9: Financial Instruments replaces IAS 39 Financial Instruments: Measurement and Recognition and is effective for annual periods beginning on or after 1 January 2018. While minor amendments may arise due to changes in hedge accounting, implementation is not expected to have a material impact on the Group's financial statements.
IFRS:15 Revenue from Contracts with Customers is valid for periods starting on or after 1 January 2018 and specifies how and when an entity recognises revenue from a contract with a customer. This will be effective for the financial year ended 31 March 2019. The Group has reviewed its revenue streams to consider the impact of IFRS 15 on the financial statements. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied. The Group's main source of revenue is from the leasing of properties and revenue is recognised in accordance with IAS 17: Leases and SIC 15: Operating Leases-Incentives. Rental and other income is recognised over the period of the contract in accordance with the principles in IFRS 17. IFRS 15 will apply to service charge income, performance fees and miscellaneous minor contracts but it is expected that there will be no material impact from the adoption of this standard.
IFRS 16: Leases is applicable for annual periods beginning on or after 1 January 2019 will apply to the operating leases applicable to the Group's Investment property but is not expected to materially change the Group's accounting in relation to these items as lessor accounting arrangements remain largely unchanged from IAS 17.
4. Significant accounting policies
The accounting policies and methods of computation employed in the preparation of the 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 2017. 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 2017.
5. Remuneration to the Investment Manager
On 27 October 2015 at an Extraordinary General Meeting of the Company, the shareholders approved the acquisition of the Investment Manager, WK Nowlan REIT Management Limited. On 5 November 2015, the Company completed this acquisition by acquiring the entire share capital (100% of voting equity) of WK Nowlan REIT Management Limited and its parent, Nowlan Property Limited (together "the Acquirees") from the companies' shareholders (the "Vendors"). This transaction was carried out to internalise the investment management function.
As part of the arrangements in this transaction, amounts were paid or agreed to be paid for future services. These arrangements continue until November 2018, the date on which the Investment Management Agreement ("IMA") was due to expire.
These arrangements fall into three categories:
A. Remuneration for future services
A payment of EUR14.2m, the "Initial Payment", was made in November 2015. The fair value of this payment was EUR15.1m due to the movement in the share price for the share based portion.
This payment was made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. The clawback arrangements applying to one third of this payment are removed on each anniversary of the acquisition date until November 2018. EUR2.2m was recognised as "Prepaid remuneration expense" (Note 11) in the condensed consolidated income statement in the six months ended 30 September 2017 (30 September 2016: EUR2.2m) and EUR4.9m (31 March 2017: EUR7.1m) is included in trade and other receivables as prepaid remuneration and split between current and non-current elements (Note 20).
B. Performance related payments
Performance related payments comprise absolute and relative performance fees as described under the IMA. These amounts are calculated and paid annually to the Vendors of the Investment Manager, contingent for the majority of Vendors on the fulfilment of their service obligations.
Performance fees are earned for performance over 12-month periods. Performance fees of EUR1.9m (30 September 2016: EURnil) were provided for in the six months ended 30 September 2017: these reflected the Group's relative outperformance of the MSCI/IPD Ireland index in the period and also factored in the estimated impact of the stamp duty changes.
C. "Top-up" internalisation expense for the period
"Top-up" internalisation expense for period is EUR0.9m (30 September 2016: EUR0.7m) and relate to management fees that would have been due under the IMA as a result of increases in NAV in the period since internalisation.
Summary of performance related payments
Six months ended Six months ended
30 September 30 September
2017 2016 Unaudited
Unaudited
EUR'000 EUR'000
Performance fee estimated
for period 1,942 -
Non-IMA performance related
share based payments 237 -
----------------- -----------------
Total performance related payments 2,179 -
for the period
"Top-up" internalisation
expense (Note 11) 890 659
----------------- -----------------
Total 3,069 659
----------------- -----------------
Of which are:
Payable to Vendors 2,541 659
Payable to employees 528 -
----------------- -----------------
Total 3,069 659
----------------- -----------------
Of which share based (Note
12) 3,069 659
----------------- -----------------
The estimated amount due to the Vendors based on performance and "top-up" fees in the period is therefore EUR2.5m (30 September 2016: EUR0.7m), all of which will be payable in shares of the Company (Note 12) after 31 March 2018, assuming that there are no changes in the performance fee calculation in the second half of the year.
The payments above, while remuneration in nature due to the existence of clawback, vesting or service conditions, are not under the discretion of the Remuneration Committee but were determined in the share purchase agreement for the acquisition of the Investment Manager and approved by the shareholders of the Company at the Extraordinary General Meeting of the Company held on 27 October 2015.
All amounts of fees payable in shares are further analysed in Note 12 to the condensed consolidated interim financial statements and are recorded at fair value as at the end of the financial period.
6. Operating segments
The Group is organised into five business segments, against which the Group reports its segmental information, being "Office Assets", "Office Development Assets", "Residential Assets", "Industrial Assets", and "Central Assets and Costs". Segment analysis is based on the type of investment property with other assets containing non-core assets. Central Assets and Costs include the Group head office assets, some residual non-core assets, and expenses. All the Group's operations are in Dublin in the Republic of Ireland. Operating segments are reported in a manner consistent with the reporting to the Board of Directors of the Company which is the chief operating decision maker of the Group. No segments are aggregated.
Central assets include cash and cash equivalents, tax refundable and administration expenses paid in advance. In addition, cash received in advance in relation to rental receipts on properties and rental income accrued have been allocated from receivables and cash and cash equivalents to the appropriate segment.
The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses which comprises revenue (rental and service charge income, and other gains and losses such as development management fees), property outgoings, revaluation of investment properties and other gains and losses. Total income after revaluation gains and losses includes rental income which is used as the basis to report key performance measures to the Board such as EPRA(14) Net Initial Yield ("NIY") and EPRA "Topped-- Up" NIY, which measure the 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. Passing rent is the actual cash rent being received from tenants at the period end, i.e. excluding accounting adjustments for rental incentives.
Group Consolidated Segment Analysis
For the six months ended 30 September 2017
Office Office Residential Industrial Central Group
Assets Development Assets Assets Other Assets Consolidated
Assets Assets and Position
Costs
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Total revenue 21,940 504 3,217 267 - - 25,928
---------- ------------- ------------ ----------- --------- --------- --------------
Rental income 19,575 470 3,217 317 - - 23,579
Net property
expenses (957) (91) (598) (69) - - (1,715)
Net rental income 18,618 379 2,619 248 - - 21,864
Revaluation of
investment
properties 46,112 17,429 44 (1,959) - - 61,626
Other gains and
(losses) - - - - - (1,082) (1,082)
Total Income 64,630 17,808 2,663 (1,711) - (1,082) 82,408
---------- ------------- ------------ ----------- --------- --------- --------------
Performance related
payments - - - - - (2,179) (2,179)
Depreciation - - - - - (128) (128)
Administration
expenses - - - - - (6,373) (6,373)
Total operating
expenses - - - - - (8,680) (8,680)
---------- ------------- ------------ ----------- --------- --------- --------------
Operating
profit/(loss) 64,630 17,808 2,663 (1,711) - (9,762) 73,728
Finance expense - - - - - (3,081) (3,081)
---------- ------------- ------------ ----------- --------- --------- --------------
Profit before tax 64,630 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
Properties 1,030,929 99,716 117,464 17,498 - - 1,265,607
========== ============= ============ =========== ========= ========= ==============
Group Consolidated Segment Analysis
For the period ended 30 September 2016
Office Office Residential Industrial Other Central Group
Assets Development Assets Assets Assets assets Consolidated
Assets and Position
costs
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Total revenue 14,724 12 3,261 262 47 - 18,306
-------- ------------- ------------ ----------- -------- ------------------- --------------
Rental income 14,724 12 3,261 262 47 - 18,306
Net property (665
expenses (854) (30) ) (37) (34) - (1,620)
Net rental
income 13,870 (18) 2,596 225 13 - 16,686
Revaluation of
investment
properties 9,957 12,252 1,383 750 - - 24,342
Other gains and
(losses) . 293 - - 86 - 379
Total Income 23,827 12,527 3,979 975 99 - 41,407
-------- ------------- ------------ ----------- -------- ------------------- --------------
Performance
related
payments - - - - - (659) (659)
Depreciation - - - - - (77) (77)
Administration
expenses - - - - - (5,543) (5,543)
Total operating
expenses - - - - - (6,279) (6,279)
-------- ------------- ------------ ----------- -------- ------------------- --------------
Operating
profit/(loss) 23,827 12,527 3,979 975 99 (6,279) 35,128
Finance expense - - - - - (2,719) (2,719)
-------- ------------- ------------ ----------- -------- ------------------- --------------
Profit before
tax 23,827 12,527 3,979 975 99 (8,998) 32,409
Income tax - - - - - (113) (113)
-------- ------------- ------------ ----------- -------- ------------------- --------------
Profit for the
period 23,827 12,527 3,979 975 99 (9,111) 32,296
======== ============= ============ =========== ======== =================== ==============
Total Segment
Assets 841,961 67,900 115,355 13,148 980 33,261 1,072,605
======== ============= ============ =========== ======== =================== ==============
Investment
Properties 835,915 67,900 114,900 13,148 - - 1,031,863
======== ============= ============ =========== ======== =================== ==============
7. Total revenue
Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
EUR'000 EUR'000
Gross rental income (Note
8) 22,413 17,875
Rental incentives (Note
8) 1,166 431
Service charge income (Note 2,349 -
9)
------------------- -------------------
Total Revenue 25,928 18,306
------------------- -------------------
Rental income arises from the Group's investment properties and all revenue is from external customers. Significant concentrations in revenue may arise in rental income and the percentage of rental income from the Group's top ten tenants are disclosed on page 14 of this half yearly financial report.
8. Rental income
Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
EUR'000 EUR'000
Gross rental income 22,413 17,875
Rental incentives 1,166 431
------------------- -------------------
Rental income 23,579 18,306
------------------- -------------------
9. Net property expenses
Six months ended Six months ended
30 September 30 September 2016
2017 Unaudited Unaudited
EUR'000 EUR'000
Service charge income (2,349) -
Service charge expense 2,485 -
Other property expenses 1,579 1,620
----------------- -------------------
1,715 1,620
----------------- -------------------
Service charge income relates to contributions from tenants of buildings for the property expenses of the occupied buildings managed by the Group. Service charge expense includes building management staff costs and all other costs of managing the buildings. Building management fees are accounted for through the service charge income line along with the amounts invoiced to tenants. Other property expenses consist mainly of vacancy costs of commercial properties as well as residential property costs.
10. Other gains and (losses)
Six months Six months ended
ended 30 September 30 September
2017 Unaudited 2016 Unaudited
EUR'000 EUR'000
Gains on sales of non-current assets
classified as held for sale - 86
Other gains and (losses) (1,082) 293
-------------------- -----------------
Other gains and (losses) (1,082) 379
-------------------- -----------------
Other gains and (losses) arise mainly from the fair value movements on share based payments. A EUR0.9m loss was recognised relating to shares issued during the period in settlement of performance related payments for the year ended 31 March 2017 (30 September 2016: EUR0.2m) (Note 22).
11. Administration Expenses
Operating profit for the period has been stated after charging:
Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
EUR'000 EUR'000
Non-executive directors'
fees 149 150
Valuation fees 151 162
Prepaid remuneration expense 2,222 2,222
Depositary fees 129 158
Depreciation 128 77
"Top-up" internalisation expense 890 659
Staff costs 1,630 1,025
Professional and consulting
fees 531 825
Other expenses 671 1,001
------------------- -------------------
Total administration expenses 6,501 6,279
------------------- -------------------
All fees paid to non-executive directors are for services as directors. Non-executive directors receive no other benefits with the exception of William Nowlan who also received fees as a Vendor. Please see Note 31: Related parties for further details.
Prepaid remuneration expense relates to the recognition of payments to Vendors of the Investment Manager that are contingent on the continued provision of services to the Group over the period during which the Group benefits from those services and is further discussed in Note 5. "Top-up" internalisation is due to Vendors based on increases in management fees that would have been due under the IMA as a result of increases in NAV since 31 March 2017.
12. Share based payments
As at 30 September 2017 the Group had the following share based payment arrangements:
a. Performance related payments
As part of the arrangements for the internalisation of the Investment Manager in 2015, it was agreed that any future performance fees and other payments due under the terms of the Investment Management Agreement ("IMA"), would be made in shares of the Company until the expiry of the agreement in November 2018. The calculation of these amounts is determined using the EPRA Net Asset Value of the Group at the financial year end and the investment property returns as determined by MSCI/IPD (Investment property databank) and using calculation protocols as set out in the Investment Management Agreement or as subsequently modified by shareholder agreement at an EGM on 26 October 2016.
These amounts are referenced to the average closing price of Hibernia shares on the Irish Stock Exchange for the 20 business days preceding the grant date in order to calculate the number of shares that should be issued for any such award.
Once the NAV, including valuation of the investment properties, is determined, the amount of the award is fixed and the Directors have determined that the grant date for the share based payment is the date on which the calculation is fixed, i.e. 31 March each year. EUR2.8m has been provided in the six months ending 30 September 2017 (30 September 2016: EUR0.7m). This includes "top-up" fees of EUR0.9m (30 September 2016: EUR0.7m) (Note 5.B).
Shares issued relating to performance-related payments to Vendors that remain obliged to perform future services for the Group are subject to lock-up provisions meaning they are restricted from being sold upon receipt, with one third of the shares being "unlocked" on each anniversary of issue date. All shares are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them. The Directors considered the likelihood of the clawback provision being triggered on these shares, the difficulty in measuring this provision, and the likelihood that any discount to be applied would be material. They concluded that it was inappropriate to modify the fair value of the shares issued to reflect these restrictions and that the shares issued would be valued without any discount to reflect these restrictions.
b. Employee long term incentive plan
Awards may be granted to employees of the Group under a remuneration plan which includes both cash elements and share-based long-term incentive payments (the "Performance Related Remuneration Scheme" or "PRR"). Until the expiry of the performance related payments referenced in part a) above in November 2018, the PRR will be funded principally by deductions of up to 15% from any Performance Fees included in this payment. Shares awarded under the PRR, 50% of the total award or up to 7.5% of the performance related payments at a) above, are in the form of a contingent grant of Company shares which will issue at the time of vesting, which occurs on the third anniversary of the start of the year to which they relate. The number of shares is calculated based on the average closing price for the 20 business days preceding the end of the period to which the award relates. These shares are recorded at fair value on the contingent grant date, i.e. the 31 March of the year to which they are earned.
Shares are forfeited should the person leave the Group prior to the vesting date unless subject to "good leaver" provisions. Any shares forfeited are transferable to the Vendors on the basis that these shares have been deducted from performance fees that would otherwise have been due to the Vendors. Therefore, there is no impact on fair value measurement in respect of these shares.
Share based payments made and provided during the period:
Period ended 30 September 2017 (Unaudited)
Shares issued during the period:
6,895,231 Ordinary Shares of EUR0.10 were issued during the period in settlement of performance related fees due at 31 March 2017. The number of shares is determined by reference to the contract price. The fair value at the grant date was EUR8.6m. These shares were issued on 3 July 2017 on which day the prior closing price was EUR1.375.
Summary of share based payments outstanding as at 30 September 2017
Payment Share price Estimated
provided at grant Share price # of shares Fair value
for this date/ provision at period to be issued at period
period EUR'000 date end '000 end EUR'000
Employee share based payment
reserve brought forward - Various 1.525 690 1,053
Non-IMA employee share based
awards provided 194 1.302 1.525 155 237
"Top-up" internalisation expenses
for the period 890 1.525 1.525 584 890
Performance related payments
provided in period (Note 12.a) 1,942 1.525 1.525* 1,273 1,942
--------------- ------------- ------------
Balance at period end 3,026 2,702 4,122
--------------- ------------- ------------
* estimated based on closing price at 30 September
2017, grant date will be 31 March 2018.
--------------------------------------------------------------------- ----------- ------------- ------------
Year ended 31 March 2017 (Audited)
Shares issued during the period:
4,200,590 Ordinary Shares of EUR0.10 were issued during the period in settlement of performance related fees due at 31 March 2016. The number of shares is determined by reference to the contract price. The fair value at the grant date was EUR5.5m. These shares were issued on 16 August 2016 on which day the prior closing price was EUR1.36.
Summary of share based payments outstanding as at 31 March 2017
Estimated
Payment # of Fair
provided Share shares value
for this Share price price to be at financial
financial at grant at financial issued year
year EUR'000 date year end '000 end EUR'000
Employee share based payment
reserve brought forward - Various 1.245 350 436
Windmill promote fee 2,308 1.201 1.245 1,946 2,423
"Top-up" internalisation
expenses
for financial year 1,101 1.245 1.245 890 1,108
Performance related payments
provided in period 5,464 1.245* 1.245 4,417 5,500
-------------- ---------- --------------
Balance at period end 8,873 7,603 9,467
-------------- ---------- --------------
* based on grant date - 31
March 2017.
-------------------------------- -------------- ------------ -------------------------- ---------- --------------
Six months ended 30 September 2016 (Unaudited)
Shares issued during the period:
4,200,590 Ordinary Shares of EUR0.10 were issued during the period in settlement of performance related fees at a fair value of EUR1.302 on 31 March 2016, the grant date, giving a total recorded amount of EUR5.5m in settlement of fees due.
Share based payments outstanding as at 30 September 2016
Payment provided Estimated # of
for this period shares to be issued
EUR'000 Price '000
Balance of 2016 performance
related payments - Employee
portion 456 1.302 350
Performance related payments
provided in period 659 1.370* 481
------------------- ---------------------
Balance payable at period
end 1,115 831
------------------- ---------------------
* based on closing price at 30 September 2016,
grant date was 31 March 2017.
------------------------------------------------------------- ---------------------
13. Finance income and expense
The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees and amortisation of arrangement fees.
Six months ended Six months ended
30 September 30 September 2016
2017 Unaudited Unaudited
EUR'000 EUR'000
Interest income on cash and
cash equivalents 4 6
Effective interest expense
on borrowings (3,085) (2,725)
----------------- -------------------
Total finance income and
expense (3,081) (2,719)
----------------- -------------------
Interest costs capitalised in the period were EUR1.3m (30 September 2016: EURnil) in relation to the Group's development and refurbishment projects. The rate used, 4.2%, is the effective interest rate on the cost of borrowing applied to the portion of investment that is financed by the relevant facility.
14. Income tax
Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
EUR'000 EUR'000
Income tax on residual (10) -
income
Deferred tax credit on 17 -
residual income
Tax on the disposal of
non-core assets (57) (113)
Over provision in respect of 7 -
prior periods
------------------- -------------------
Income tax (expense) for the
period (43) (113)
------------------- -------------------
Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
EUR'000 EUR'000
Profit before tax 70,647 32,409
Tax charge on profit at standard
rate of 12.5% 8,831 4,051
Non-taxable revaluation
surplus (7,703) (3,043)
REIT tax-exempt rental
profit (1,138) (1,008)
Additional tax rate on
non-core and residual 60 113
Over provision in prior (7) -
period
------------------- -------------------
Income tax expense for the
period 43 113
------------------- -------------------
Hibernia REIT plc has elected for Real Estate Investment Trust ("REIT") status under section 705E Tax Consolidation Act 1997. As a result, the Group does not pay Irish corporation tax on the profits and gains from its qualifying rental business in Ireland provided it meets certain conditions. With certain exceptions, corporation tax is still payable in the normal way in respect of income and gains from a Group's residual business, that is, its non-property rental business.
The Directors confirm that the Group has remained in compliance with the Irish REIT rules and regulations up to and including the date of this report.
15. Dividends
The Board has declared an interim dividend of 1.1 cent per share (30 September 2016: 0.75 cent) which will be paid to shareholders in January 2018. All of the interim dividend of 1.1 cent per share will be a Property Income Distribution ("PID") in respect of the Group's property rental business as defined under the Irish REIT legislation (30 September 2016: 0.75 cent).
16. Earnings per Share
There are no convertible instruments, options, warrants on ordinary shares in issue as at the period ended 30 September 2017. However, the Company has established a reserve of EUR4.1m (30 September 2016: EUR1.1m) against the issue of ordinary shares relating to the payment of performance related amounts due under the performance related payment element of the Share Purchase Agreement relating to the internalisation of the Investment Manager and amounts due under long term incentive arrangements for employees not included in the internalisation arrangements (Notes 5 and 12). It is estimated that approximately 2.7m ordinary shares (30 September 2016: 0.8m shares) will be issued and the details of these amounts are set out in Note 12. The dilutive effect of these shares is disclosed below.
The calculations are as follows:
Six months ended Six months ended
30 September 2017 30 September 2016
Unaudited Unaudited
'000 '000
Issued share capital at beginning
of period 685,452 681,251
Shares issued during the period 6,895 4,201
------------------- -------------------
Shares in issue at period end 692,347 685,452
------------------- -------------------
Weighted average number of shares 688,900 683,351
Estimated additional shares
due under share based payments
(Note 12) 2,702 831
------------------- -------------------
Diluted number of shares 691,602 684,182
------------------- -------------------
Basic and diluted earnings per share Six months ended Six months ended
(IFRS) 30 September 30 September
2017 Unaudited 2016
Unaudited
EUR'000 EUR'000
Profit for the period attributable
to the owners of the Company 70,604 32,296
----------------- -----------------
'000 '000
Weighted average number of ordinary
shares (basic) 688,900 683,351
Weighted average number of ordinary
shares (diluted) 691,602 684,182
Basic earnings per share (cents) 10.2 4.7
----------------- -----------------
Diluted earnings per share (cents) 10.2 4.7
--------------------------------------- ----------------- -----------------
Six months ended Six months ended
EPRA earnings per share and Diluted 30 September 30 September
EPRA earnings per share 2017 Unaudited 2016 Unaudited
EUR '000 EUR '000
Profit for the period attributable
to the owners of the Company 70,604 32,296
Exclude:
Changes in fair value of investment
properties (61,626) (24,342)
Profit or loss on disposals of non-core
assets 1 (86)
Income tax on profit or loss on
disposals - 113
Fair value movement of derivatives 45 -
----------------- -----------------
EPRA earnings 9,024 7,981
----------------- -----------------
'000 '000
Weighted average number of ordinary
shares (basic) 688,900 683,351
Weighted average number of ordinary
shares (diluted) 691,602 684,182
EPRA earnings per share (cent) 1.3 1.2
----------------- -----------------
Diluted EPRA earnings per share
(cent) 1.3 1.2
------------------------------------------ ----------------- -----------------
17. Property, plant and equipment
The Group occupies 54% (31 March 2017: 54%) of the office space in its South Dock House property. This property was revalued as at 30 September and 31 March 2017 by the Group's valuers and in accordance with the valuation approach described under Note 2. (f).
Land and Office Leasehold Total
buildings and computer improvements
equipment and fixtures
At 30 September 2017 and fittings
EUR'000 EUR'000 EUR'000 EUR'000
Carrying value at start of period 4,473 56 272 4,801
Additions:
Purchases - 41 135 176
Depreciation (41) (31) (56) (128)
Revaluations included in other
comprehensive income 542 - - 542
----------- -------------- -------------- ---------
Carrying value at end of period 4,974 66 351 5,391
----------- -------------- -------------- ---------
At 31 March 2017
Land Office Leasehold Total
and buildings and computer improvements
equipment and fixtures
and fittings
EUR'000 EUR'000 EUR'000 EUR'000
Carrying value at start of
financial year 2,703 32 211 2,946
Additions:
Transferred from investment
property at fair value 1,651 - - 1,651
Purchase - 51 174 225
Depreciation (67) (27) (113) (207)
Revaluations included in other
comprehensive income 186 - - 186
--------------- -------------- -------------- ---------
Carrying value at end of financial
year 4,473 56 272 4,801
--------------- -------------- -------------- ---------
18. Investment properties
Office
Development Residential Industrial
Office Assets Assets Assets Assets Total
Fair value category Level 3 Level 3 Level Level Level
3 3 3
Group Group Group Group Group
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Carrying Value at 31
March 2016 647,042 155,016 113,200 12,398 927,656
Additions: -
Property Purchases 52,369 32,981 28 - 85,378
Development and Refurbishment
Expenditure 7,413 44,754 299 13 52,479
Revaluations included
in income statement 37,925 61,941 2,902 757 103,525
Disposals: -
Transferred to property,
plant and equipment
as owner occupied (1,651) - - - (1,651)
Transferred between
segments 126,650 (126,650) - - -
---------------- ------------- -------------- ------------- ------------
Carrying Value at 31
March 2017 869,748 168,042 116,429 13,168 1,167,387
---------------- ------------- -------------- ------------- ------------
Additions:
Property Purchases - - 922 6,203 7,125
Development and Refurbishment
Expenditure 6,169 23,145 69 86 29,469
Revaluations included
in income statement 46,112 17,429 44 (1,959) 61,626
Disposals:
Transferred between
segments(1) 108,900 (108,900) - - -
---------------- ------------- -------------- ------------- ------------
Carrying Value at 30
September 2017 unaudited 1,030,929 99,716 117,464 17,498 1,265,607
---------------- ------------- -------------- ------------- ------------
(1) 2WML("The Hanover Building") was vacated and ready for redevelopment at 1 April 2017 and was therefore transferred to Office development assets on that date. 1WML development was substantially complete and transferred into Office assets at the period end. Both transferred at fair value at the relevant date.
Reconciliation of the independent valuer's valuation report amount to the carrying value of investment property in the condensed consolidated statement of financial position:
Period ended Financial year
30 September ended 31 March
2017 Unaudited 2017 Audited
EUR'000 EUR'000
Valuation per Valuers' report 1,275,815 1,175,926
Owner occupied (Note 17) (4,974) (4,473)
Rental incentives adjustment(1) (5,234) (4,066)
---------------- ----------------
Investment property balance
at period end 1,265,607 1,167,387
---------------- ----------------
(1) Rental incentives adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cashflow based approach while incentives given to tenants under lease arrangements are recognised as an integral part of the net consideration agreed for the use of the leased asset and the aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term.
The valuations used to determine fair value for the investment properties in the condensed consolidated interim financial statements for the six months ended 30 September 2017 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 as did CBRE, who previously acted as the Group's independent valuer. Some of the inputs to the valuations are defined as "unobservable" by IFRS 13. As discussed in Note 2. (e) of this report, property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer. For these reasons, and consistent with EPRA's guidance, the Group has classified the valuations of its property portfolio as Level 3 as defined by IFRS 13. Valuations are completed on the Group's investment properties on at least a half yearly basis and are in accordance with the appropriate sections of the 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"). It follows that these valuations are compliant with International Valuation Standards. 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 2017, for most properties the highest and best use is the current use except as discussed in Note 2.(e). In these instances, the Group may need to achieve vacant possession before re-development or refurbishment may take place and the valuation of the property takes account of any remaining occupancy period on existing leases. The table below summaries the approach for each investment property segment and highlights properties where the approach has been varied.
The method that is applied for fair value measurements categorised within Level 3 of the fair value hierarchy is the yield methodology using market rental values capitalised with a market capitalisation rate or yield or other applicable valuation technique. Using this approach for the Group's investment properties, values of investment properties are arrived at by discounting forecasted net cashflows at market derived capitalisation rates. This approach includes future estimated costs associated with refurbishment or development, together with the impact of rental incentives allowed to tenants. Therefore, for example, development properties are assessed using a residual method in which the completed development property is valued using income and yield assumptions and deductions are made for the estimated costs to completion, including finance costs and developers' profit, to arrive at the current valuation estimate. In effect, this values the development as a proportion of the completed property.
The following table illustrates the methods applied to each segment:
Description of Fair value of Narrative description Whether or not
investment property the investment of the techniques there was a change
asset class property used in the technique
EUR 'm at the during the period
period end
--------------------- ---------------- -------------------------------- -----------------------------
Office assets 1,031 Yield methodology No change in valuation
using market rental technique.
values capitalised 1WML has been added
with a market capitalisation to this segment
rate. as it is now complete.
Harcourt Square The Harcourt Square
is valued on current valuation has been
income basis for based on a complete
balance of lease demolition of the
term and then on existing building
a discounted residual on the expiry of
appraisal basis the current lease
for redevelopment. rather than a refurbishment
which is in the
opinion of the
Directors the best
use of the property.
--------------------- ---------------- -------------------------------- -----------------------------
Office development 100 Residual method 2WML is now under
assets i.e. "Gross Development refurbishment and
Value" less "Total is therefore measured
Development Cost" on the residual
less "Profit" equals method and has
"Fair Value" been transferred
* Gross Development to the "office
Value ("GDV"): development assets"
the fair value segment with effect
of the completed from 1 April 2017.
proposed development
(arrived at by 1WML has been transferred
capitalising the to the office assets
ERV with an appropriate segment as of 30
yield). September 2017
* Total Development as it is now complete.
Cost("TDC"): These
include, but are
not limited to,
construction costs,
land acquisition
costs, professional
fees, levies, marketing
costs and finance
costs.
* Profit or "Profit
on Cost": This
is measured as
a percentage of
the total development
costs (including
the site value).
For developments,
close to completion
the yield methodology
is generally applied,
especially where
pre-lets have occurred.
--------------------- ---------------- -------------------------------- -----------------------------
Residential assets 117 Yield methodology No change in valuation
using market rental methodology. Dundrum
values capitalised View and Wyckham
with a market capitalisation Point continue
rate. In the case to be valued on
of Cannon Place, a yield basis although
where the highest C&W value on a
and best use is gross yield basis
different from whereas CBRE valued
the current use, on a net yield
the asset is now basis. The change
valued on an individual from a net to gross
apartment basis basis does not
which is the highest impact the valuation
and best use for significantly.
this building. Cannon Place was
valued on an individual
apartment basis
by CBRE in March
and C&W in Sept
2017.
--------------------- ---------------- -------------------------------- -----------------------------
Industrial assets 18 Yield methodology No change in valuation
using market rental technique.
values capitalised
with a market capitalisation
rate.
--------------------- ---------------- -------------------------------- -----------------------------
In valuing the Group's investment properties, the Directors have applied a reduction of EUR5.2m (31 March 2017: EUR4.1m) to the valuer's valuations to factor in the impact of the accounting policy on the recognition of rental incentives allowed to tenants. This deduction is a measure of the impact on the property valuation of the difference between cash and accounting approaches to the recognition of rental income.
There were no transfers between fair value levels during the period. Approximately EUR1.3m of financing costs were capitalised in the period in relation to the Group's developments and refurbishments (31 March 2017: EUR0.9m).
Information about fair value measurements using unobservable inputs (Level 3).
The valuation techniques used in determining the fair value for each of the categories of assets is market value as defined by VPS4 of the Red Book 2014, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, and is in accordance with IFRS 13. Included in the inputs for the valuations above are future development costs where applicable. These development costs are generally determined by tender at the outset of the project and are neither unobservable nor subject to material change.
As outlined above, the main inputs in using a market based capitalisation approach are the ERV and equivalent yields. ERVs, apart from in multi-family residential properties as discussed below, are not generally directly observable and therefore classified as Level 3. Yields depend on the valuers assessment of market capitalisation rates and are therefore Level 3 inputs.
The table below summarises the key unobservable inputs used in the valuation of the Group's investment properties at 30 September 2017. There are interrelationships between these inputs as they are both determined by market conditions, and the valuation result in any one period depends on the balance between them. The Group's residential properties are multi-family units and therefore ERVs are based on current market rents observed for units rented within the property. ERV is included in the below table for completeness.
Key unobservable inputs used in the valuation of the Group's investment properties
Estimated rental
value EUR per sq. Equivalent Yield
30 September 2017 Market Value ft. %
EUR '000 Low High Low High
------------- ------------ ------------- --------- --------
Office 1,030,929 EUR20.00psf EUR60.00psf 4.58% 6.72%
EUR30.00 EUR57.50
Office development 99,716 psf psf 4.75% 5.00%
EUR19,800 EUR 26,400
Residential(15) 117,464 pa pa 4.18% 6.15%
EUR5.50 EUR5.50
Industrial 17,498 psf psf 7.48% 7.48%
Estimated rental
value EUR per sq. Equivalent Yield
31 March 2017 Market Value ft. %
EUR '000 Low High Low High
------------- ------------ ------------- --------- --------
EUR26.00 EUR55.00
Office 869,748 psf psf 4.89% 6.57%
EUR50.00 EUR55.00
Office development 168,042 psf psf 4.90% 5.60%
EUR19,800 EUR 22,800
Residential * 116,429 pa pa 4.60% 4.60%
EUR2.26 EUR5.75
Industrial 13,168 psf psf 6.50% 6.50%
-------------------- ------------- ------------ ------------- --------- --------
* Average ERV per
2 bed apartment
------------ ------------- --------- --------
The sensitivities below illustrate the impact of movements in key unobservable inputs on the fair value of investment properties. To calculate these impacts only the movement in one unobservable input is changed as if there is no impact on the other. In reality, there may be some impact on yields from an ERV movement and vice versa. However, this gives an assessment of the maximum impact of movements in each variable. If rents in the market are assumed to move 5% from those estimated at 30 September 2017, the Group's investment property portfolio would increase or decrease in value approximately EUR60-62m (31 March 2017: EUR57m). A 25bp increase in equivalent yields would decrease the value of the portfolio by EUR68m (31 March 2017: EUR62m) and a 25bp decrease results in an increase in value of EUR78m (31 March 2017: EUR68m).
30 September
2017
Sensitivities Impact on market value of Impact on market value
a 5% change in the estimated of a 25bp change in the
rental value equivalent yield
Increase EUR Decrease EUR'm Increase EUR Decrease EUR'm
'm 'm
Office 46.1 (47.2) (55.3) 60.4
Office development 8.9 (8.9) (9.1) 10.1
Residential 5.3 (5.6) (4.9) 4.9
Industrial 0.5 (0.6) (0.4) 0.4
Total 60.8 (62.3) (69.6) 75.8
31 March 2017
Sensitivities Impact on market value Impact on market value of
of a 5% change in the estimated a 25bp change in the equivalent
rental value yield
Increase EUR Decrease EUR'm Increase EUR Decrease EUR'm
'm 'm
Office 39.5 (39.4) (44.2) 48.6
Office development 12.0 (12.0) (11.3) 12.5
Residential 4.9 (4.9) (5.7) 6.3
Industrial 0.5 (0.5) (0.4) 0.4
Total 56.9 (56.8) (61.6) 67.8
19. Other financial assets
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Derivatives at fair value 223 115
Loans carried at amortised
cost 152 152
----------------- -------------
Balance at end of period end
- non-current 375 267
----------------- -------------
Derivatives at fair value are the Group's hedging instruments on its borrowings. The Group has hedged up to EUR200m of its revolving credit facility (31 March 2017: EUR100m) by a combination of caps and swaptions to limit the EURIBOR interest rate element of interest payable to 1%. A similar arrangement is in place on the Windmill Lane debt facility.
20. Trade and other receivables
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Non-current
Prepaid remuneration (1) 457 2,679
Property income receivables 4,413 4,066
Other receivables 1,750 1,791
Balance at end of period -
non-current 6,620 8,536
Current
Investment property deposit 130 -
Prepaid remuneration (1) 4,444 4,444
Receivable from loan redemptions 137 137
Property income receivables 3,038 4,538
Prepayments 882 789
Tenant fit-out 173 -
Income tax refund due 87 128
VAT refundable 225 72
Balance at end of period
- current 9,116 10,108
Balance at end of period
-total 15,736 18,644
(1): This consists of the balance of the payment to Vendors who are service providers subject to clawback arrangements relating to the internalisation transaction (Note 5).
There are no amounts past due. The Directors consider that the carrying value of trade and other receivables approximates to their fair value. The lease incentive accrual (EUR5.2m split across non-current and current assets) is provided against the fair value of the investment properties and is therefore fully recoverable (Note 18). EUR4.9m relates to prepaid remuneration (Note 5). The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (Note 29).
21. Non-current assets classified as held for sale
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Balance at end of financial
period 385 385
----------------- --------------
Non-current assets classified as held for sale are measured at the carrying amount. The Directors have assessed the fair value of these assets by reviewing the sales prices achieved on similar assets and the expected sales price as determined by the selling agent in preparing their disposal plans.
22. Issued capital and share premium
30 September 2017 Unaudited 31 March 2017 Audited
Share Share Total Share Share Total
Capital Premium Capital Premium
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at beginning
of period 68,545 609,565 678,110 68,125 604,273 672,398
Shares issued during
the period (a) 690 8,791 9,481 420 5,292 5,712
Balance at end of period 69,235 618,356 687,591 68,545 609,565 678,110
(a) Shares issued during the six-month period were as follows:
30 September 2017
6,895,231 Ordinary Shares with a nominal value of EUR0.10 were issued during the period in settlement of performance related fees at a fair value of EUR1.245 on 31 March 2017, the grant date, giving a total recorded of EUR8.6m in settlement of fees due.
All of these shares were issued on 3 July 2017 when the fair value was EUR9.5m and the associated costs were EUR14k.
At 31 March # Shares Price on issue Fair value
2017 '000 date difference
EUR'000 EUR'000 on settlement
EUR'000
Share price 1.245 1.375
Settlement of performance
fees due for 2017
financial year 8,585 6,895 9,481 896
31 March 2017
4,200,590 Ordinary Shares with a nominal value of EUR0.10 were issued during the period in settlement of performance-related fees at a fair value of EUR1.302 on 31 March 2016, the grant date, giving a total recorded of EUR5.5m in settlement of fees due.
All of these shares were issued on 16 August 2016 when the fair value was EUR5.7m and the associated costs were EUR19k.
At 31 March No. Price Fair value difference
2016 of Shares on issue on settlement
EUR'000 '000 date EUR'000
EUR'000
Share price 1.302 1.360
Settlement of performance
fee due for 2016 financial
year 5,469 4,201 5,712 243
Authorised share capital 30 September 31 March 2016
2016 Unaudited Audited
No of shares No of shares
'000 '000
Authorised 1,000,000 1,000,000
Allotted, called up and fully
paid 685,452 681,251
In issue at period end 685,452 681,251
Under the terms of the agreement under which the Group internalised the Investment Manager, the Vendors are entitled to certain deferred contingent payments which are, for the most part, equivalent to the performance fees which would have been due under the Investment Management Agreement. Details on share based payments outstanding at the period end are contained in Note 12.
23. Other reserves
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Property revaluation (a) 1,051 509
Cash flow hedging (b) (253) (217)
Share based payments reserve
(c) 4,122 9,467
Balance at end of period 4,920 9,759
a. Properties revaluation reserve
54% of South Dock House has been recognised as an owner-occupied property as it serves as the Group's head office. Subsequent remeasurement to fair value of this property is made through other comprehensive income. On disposal, that portion of the properties revaluation reserve relating to the premises sold is transferred directly to retained earnings.
30 September 31 March
2017 2017
Unaudited Audited
EUR'000 EUR'000
Balance at beginning of period 509 323
Increase arising on revaluation of
properties (Note 17) 542 186
Balance at end of period 1,051 509
b. Cash flow hedging reserve
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Balance at beginning of period (217) (112)
Gain/(loss) arising on fair value
of hedging instruments entered
into for cash flow hedges (36) (105)
Balance at end of period (253) (217)
The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss consistent with the Group's accounting policy.
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:
Period ended Period ended
30 September 30 September
2017 Unaudited 2016
Unaudited
EUR'000 EUR'000
Finance expense 45 8
c. Share based payments reserve
30 September 31 March 2017
2017 Unaudited Audited
EUR'000 EUR'000
Balance at beginning of
period 9,467 5,925
Performance related payments
provided (Note 5.B) 3,069 8,874
Settlement of 2017 performance
fees (8,585) (5,469)
Fair value adjustment 171 137
Balance at end of period 4,122 9,467
---------------
The share based payments reserve comprises amounts provided for the issue of shares in respect of performance related and other payments. These are discussed further in Note 12.
24. Retained earnings and dividends on equity instruments
30 September 31 March 2017
2017 Unaudited Audited
EUR'000 EUR'000
Balance at beginning of
period 325,983 218,040
Profit for the period 70,604 118,586
Share issuance costs (14) (19)
Dividends paid (10,040) (10,624)
---------------
Balance at end of period 386,533 325,983
---------------
In August 2017, a dividend of 1.45 cent per share (total dividend EUR10.0m) was paid to the holders of fully paid ordinary shares.
25. Financial liabilities
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Non-current borrowings 180,990 171,138
Current borrowings 17,096 -
----------------- --------------
Total at end of period 198,086 171,138
----------------- --------------
The Group has a EUR400m revolving credit facility ("RCF") with Bank of Ireland, Barclays Bank plc and Ulster Bank DAC which has a five-year term to November 2020. The RCF is secured against a corporate debenture. Where debt is drawn to finance the Group's developments and refurbishments, the interest cost of this debt is capitalised.
The group also has a facility of EUR44.2m to fund the development works at 1 Windmill Lane ("1WML"). The Group's exposure to this facility was 50% until the acquisition of 100% of the joint operation in December 2016. As part of the purchase consideration of the Starwood portion of the Windmill joint operation, the Group assumed 100% of the drawn facility and now has full exposure to the EUR44.2m facility. The Group intends to repay this facility in early 2018 and since April 2017 has been using the RCF to fund the development expenditure on 1WML.
Where applicable, financing costs relating to these facilities are capitalised into development costs. All costs related to financing arrangements are amortised into the effective interest rate.
The Directors confirm that all covenants have been complied with and are kept under review.
All borrowings are denominated in Euro. All borrowings are subject to 6 months or less interest rate changes and contractual re-pricing rates. In addition, the Group has entered into derivative instruments so that the majority of its EURIBOR exposure is capped at 1% in accordance with the Group's hedging policy (Note 29).
26. Trade and other payables
30 September 2017 31 March 2017
Unaudited Audited
EUR'000 EUR'000
Current
Investment property costs
payable 12,164 10,083
Rent prepaid 8,794 8,589
Rent deposits and other amounts
due to tenants 1,577 2,269
Deferred revenue 1,469 1,067
Trade and other payables 4,831 2,496
PAYE/PRSI payable 153 138
Balance at end of period
-total 28,988 24,642
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.
27. IFRS and EPRA Net Asset Value per Share
The Company has established a reserve of EUR4.1m (31 March 2017: EUR9.5m) against the issue of 2.7m ordinary shares relating to shares due to issue for payments due to the Vendors of the Investment Manager and employees as detailed in Note 12.
30 September 31 March 2017
2017 Unaudited Audited
EUR'000 EUR'000
IFRS net assets at end of period 1,079,044 1,013,852
Ordinary shares in issue 692,347 685,452
IFRS NAV per share (cents) 155.9 147.9
---------------
Ordinary shares in issue 692,347 685,452
Estimated additional shares for performance
related payments 2,702 7,603
Diluted number of shares 695,049 693,055
Diluted IFRS NAV per share (cents) 155.2 146.3
---------------
30 September 31 March 2017
2017 Unaudited Audited
EUR'000 EUR'000
IFRS net assets at end
of period 1,079,044 1,013,852
Net mark to market on financial
assets 170 117
Revaluation of non-current assets classified - -
as held for sale
EPRA NAV 1,079,214 1,013,969
EPRA NAV per share (cents) 155.3 146.3
28. Cash flow statement
Purchase of investment property
30 September 2017 31 March 2017
Unaudited Audited
Note EUR'000 EUR'000
Property Purchases 18 7,125 85,378
Development and Refurbishment
Expenditure 18 29,469 52,479
Change in prepayment for
investment property 130 296
Finance costs accrued/(prepaid) (521) -
Investment property costs
payable (2,081) (953)
Cash paid for investment
property 34,122 137,200
29. 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 Level Fair value Assumptions
value calculation
technique
Cash and cash Amortised 1 Cash Value The fair value of cash
equivalents cost and cash equivalents held
at amortised cost have
been calculated by discounting
the expected cash flows
at prevailing interest
rates.
-----------
Loan and receivables Amortised 3 Assessed in Valuation of collateral
cost relation to is subjective based on
collateral agents guide sales prices
value and market observation
of similar property sales
where available.
-----------
Trade and other Amortised 2 Cash settlement Most of these are receivables
receivables cost value in relation to prepayments
and they are expected to
be recoverable in the short
term. No discounting is
therefore applied.
Financial liabilities Amortised 2 Discounted The fair value of financial
cost cashflow liabilities held at amortised
cost have been calculated
by discounting the expected
cash flows at prevailing
interest rates.
-----------
Derivative Fair value 2 Pricing models The fair value of derivative
financial instruments from external financial instruments is
providers calculated using pricing
models and is based on
observable inputs from
financial markets.
-----------
Trade and other Amortised 2 Cash settlement We have assessed these
payables cost value items and have determined
that they are either deferred
income or accruals or are
creditors that will settle
in the short term based
on their cash value and
therefore no discounting
is applied.
-----------
The carrying value of non-interest bearing financial assets and financial liabilities and cash and cash equivalents approximates their fair values, largely due to their short-term maturities.
c. Fair value hierarchy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety.
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 Unaudited
2017
Level Loans and At Fair At amortised Carrying Fair value
receivables value cost value
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Trade and other receivables 2 15,736 - - 15,736 15,736
Loans 3 152 - - 152 152
Derivatives at fair
value 2 - 223 - 223 223
Cash and cash equivalents 1 18,624 - - 18,624 18,624
Financial liabilities 2 - - (198,086) (198,086) (198,086)
Trade and other payables 2 - - (28,988) (28,988) (28,988)
34,512 223 (227,074) (192,339) (192,339)
As at 31 March Audited
2017
Level Loans and At Fair At amortised Carrying Fair value
receivables value cost value
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Trade and other receivables 2 18,644 - - 18,644 18,644
Loans 3 152 - - 152 152
Derivatives at fair
value 2 - 115 - 115 115
Cash and cash equivalents 1 18,148 - - 18,148 18,148
Financial liabilities 2 - - (171,138) (171,138) (171,138)
Trade and other payables 2 - - (24,642) (24,642) (24,642)
36,944 115 (195,780) (158,721) (158,721)
Transfers between fair value levels:
Movements of level 3 fair values
This reconciliation includes investment properties which is described further in Note 19 to these condensed consolidated interim financial statements.
Period ended Financial year
30 September 2017 ended
Unaudited 31 March 2017
Audited
EUR'000 EUR'000
Balance at beginning of
the period 1,167,539 927,808
Transfers out of level
3(1) - (1,651)
Purchases, sales, issues and settlement
Purchases(2) 36,594 137,857
Fair value movement 61,626 103,525
Balance at end of the
period 1,265,759 1,167,539
(1) Owner occupied property transferred to fixed assets at fair value
(2) Includes development, refurbishment expenditure and acquisitions
There were no transfers between Levels 1 and 2.
d. Risk management
The Group has identified exposure to the following risks:
Market risk
Credit risk
Liquidity risk
The policies for managing each of these and the principal effects of these policies on the results for the period are summarised below:
e. Market risk
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group has no financial assets or liabilities denominated in foreign currencies. The Group's financial assets currently principally comprise mainly short-term bank deposits and trade receivables. Financial liabilities comprise short term payables and bank borrowings. Therefore the primary market risk is interest rate risk. Bank borrowing interest rates are based on short term variable interest rates and the Group has partly hedged against increasing rates by entering into interest rate caps and swaptions to restrict EURIBOR costs to 1% for the majority of its drawn debt.
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 period end or at the previous financial year-end. Gross borrowings were EUR199.6m (31 March 2017: EUR173.4m). While interest rates remain at historic lows, the hedging strategy means there is minimal impact on earnings of EURIBOR rate increases over 1%. The Group's drawings under its facilities were based on a EURIBOR rate of 0% and therefore the impact of a rise in EURIBOR to 1% for a full year would be approximately EUR2.0m (31 March 2016: EUR1.7m).
f. Credit risk
Credit risk is the risk of loss of principal or loss of a financial reward stemming from a counterparty's failure to repay a loan or otherwise meet a contractual obligation. Credit risk is therefore, for the Group and Company, the risk that the counterparties underlying its assets default.
The Group's main financial asset is cash and cash equivalents. Cash and cash equivalents are held with major Irish and European institutions. The Board has established a cash management policy for these funds which it monitors regularly. This policy includes ratings restrictions, BB or better, and related investment thresholds, EUR25-50m with individual institutions dependent on rating, to avoid concentration risks with any one counterparty. The Company has also engaged the services of a Depositary to ensure the security of the cash assets.
Concentration of risk in receivables: There is no concentration of risk in receivables as the bulk of receivables relate to accrued income due to spreading lease incentives and prepayments. At 31 March 2017 EUR2.2m was due from a previous tenant in relation to scheduled lease break payments which have been collected in the period.
The maximum amount of credit exposure is therefore:
Period ended Financial year
30 September 2017 ended
Unaudited 31 March 2017
Audited
EUR'000 EUR'000
Financial assets 375 267
Trade and other receivables 15,736 18,644
Cash and cash equivalents 18,624 18,148
Balance at end of period 34,735 37,059
g. 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 (liabilities)/assets at the period end were:
Period ended Financial year
30 September 2017 ended 31 March
Unaudited 2017 Audited
EUR'000 EUR'000
Net current (liabilities)/assets
at the period end (17,959 ) 3,999
The following tables show total liabilities due as compared with funds available. No account is taken of trade and other receivables due, rent income due under operating leases, or other cash in-flows. Only trade payables relating to cash expenditure are included, the balances relate either to non-cash items or deferred income.
Period ended Financial year
30 September 2017 ended
Unaudited 31 March 2017
Audited
EUR'000 EUR'000
Trade and other payables 28,988 24,642
Financial liabilities 17,096 -
Total liabilities due 46,084 24,642
Funds available:
Cash and cash equivalents 18,624 18,148
Revolving credit facility
undrawn 217,500 241,000
Total funds available 236,124 259,148
Net funds available 190,040 234,506
Listed below are the contractual maturities of the Group's financial liabilities. These include interest margins payable and contracted repayments. EURIBOR is assumed at 0%.
At 30 September 2017 Carrying Contractual 6 months 6-12 months 1-2 years 2-5 years Unaudited amount cash flows or less Non-derivatives Borrowings 198,086 211,759 18,966 2,499 3,741 186,553 Trade payables 4,984 4,984 4,984 - - - Payable for investment property 12,164 12,164 12,164 - - - Total 215,234 228,907 36,114 2,499 3,741 186,553 At 31 March 2017 Carrying Contractual 6 months 6-12 months 1-2 years 2-5 years Audited amount cash flows or less Non-derivatives Borrowings 171,138 183,267 1,630 2,345 18,119 161,173 Trade payables 2,634 2,634 2,634 - - - Payable for investment
property 10,083 10,083 10,083 - - - Total 183,855 195,984 14,347 2,345 18,119 161,173 h. Capital management
The Group manages its capital in order to ensure its continuance as a going concern.
The Group has a stated policy of not incurring debt above 40% of the market value of its investment properties. Under the Irish REIT rules the ratio must remain under 50%.
Total equity comprises share capital, reserves and retained earnings as disclosed in the condensed consolidated statement of changes in equity. At 30 September 2017 the total equity of the Company was EUR1,079m (31 March 2017: EUR1,014m).
Under the Irish REIT regime, the Group must distribute at least 85% of its property income annually by way of a Property Income Distribution ("PID"). Therefore, capital available for business growth will not be augmented by dividend policy. To grow the business, the Group must therefore consider the need to seek further capital in the market given both the inability to grow reserves and the restriction on its borrowings as a source of increasing its portfolio size as discussed above.
The Company's share capital is publicly traded on the London and Irish stock exchanges.
As the Company is authorised under the Alternative Investment Fund regulations it is required to maintain 25% of its fixed overheads as capital. This is managed through the Company's risk management process. The limit was monitored throughout the period and no breaches occurred.
30. Investment in subsidiary undertakings
The Company has the following interests in ordinary shares in the following material subsidiary undertakings at 30 September 2017. These subsidiaries are fully owned and consolidated within the Group.
Registered
address/ Shareholding/
Country of Number of Nature of
Name Incorporation shares held Directors Company Secretary business
Hibernia REIT South Dock 100%/ 10 Financing
Finance Limited House, Hanover Richard Ball, activities
Quay, Dublin Thomas Edwards-Moss,
D02 XW94, Kevin Nowlan,
Ireland Frank O'Neill Sean O'Dwyer
Hibernia REIT South Dock 100%/ 1 Holding property
Holding Company House, Hanover Sanne Corporate interests
Limited Quay, Dublin Richard Ball, Administration
D02 XW94, Kevin Nowlan, Services
Ireland Frank O'Neill Ireland Limited
Hibernia REIT South Dock 100%/ 1 Property management
Building Management House, Hanover Sanne Corporate
Services Limited Quay, Dublin Richard Ball, Administration
D02 XW94, Kevin Nowlan, Services
Ireland Frank O'Neill Ireland Limited
South Dock 100%/300,000 Investment
WK Nowlan REIT House, Hanover Richard Ball, Sanne Corporate holding company
Management Quay, Dublin Thomas Edwards-Moss, Administration
Limited D02 XW94, Kevin Nowlan, Services
Ireland Frank O'Neill Ireland Limited
Nowlan Property South Dock 100%/100 Holding company
Limited House, Hanover Sanne Corporate
Quay, Dublin Kevin Nowlan, Administration
D02 XW94, William Nowlan, Services
Ireland Frank O'Neill Ireland Limited
Windmill Lane South Dock 100%/100 Development
Development House, Hanover Sanne Corporate and management
Company Limited Quay, Dublin Administration of real estate
D02 XW94, Richard Ball, Services
Ireland Kevin Nowlan Ireland Limited
The Group has other subsidiary companies which are generally property management companies and are not considered material.
The Group has no interests in unconsolidated subsidiaries.
31. Related Parties
a. Subsidiaries
All transactions between the Company and its subsidiaries are eliminated on consolidation.
b. Other related party transactions
During the period WK Nowlan Real Estate Advisors had a Director, William Nowlan, in common with the Company. WK Nowlan Real Estate Advisors continued to be engaged on an arm's length basis to carry out project management, agency and due diligence services across the Group's properties during the period ended 30 September 2017. The fees earned by WK Nowlan Real Estate Advisors for these services were benchmarked on normal commercial terms and totalled EUR0.4m for the period to 30 September 2017 (30 September 2016: EUR0.4m). An amount of EUR30k was owed to WK Nowlan Real Estate Advisors at the period end (31 March 2017: EUR30k).
The Group owns Marine House and WK Nowlan Real Estate Advisors is a tenant. In 2013, WK Nowlan Real Estate Advisors had agreed lease terms with the previous owner on normal commercial terms. The Group received rent of EUR70k (including VAT) from WK Nowlan Real Estate Advisors during the period (30 September 2016: EUR70k). No amounts were owed to the Group from WK Nowlan Real Estate Advisors at the period end.
William Nowlan, who retired as a Director of the Company on 25 July 2017, is Chairman of WK Nowlan Real Estate Advisors. William Nowlan is a shareholder in WK Nowlan Real Estate Advisors along with Kevin Nowlan and Frank O'Neill. As part of his consultancy agreement with the Company, William Nowlan is now entitled to EUR100k per annum for consulting services provided effective from the date of his resignation as Director. William Nowlan received EUR16k in relation to his role as a non-executive director in the period before his retirement and was due EUR34k in consulting fees. An amount of EUR22k was owed to him at the period end date. As part of the performance related payments for the financial year ended 31 March 2017 (Note 5) the following payments were made during the period:
Kevin Nowlan EUR3.2m, Frank Kenny EUR2.1m, William Nowlan EUR1.6m and Frank O'Neill EUR0.6m. (30 September 2016: Kevin Nowlan EUR2.0m, Frank Kenny EUR1.4m, William Nowlan EUR1.0m, Frank O'Neill EUR0.4m).
As part of his consultancy agreement with the Company, Frank Kenny is entitled to EUR100k in fees for the period ended 30 September 2017 for services provided (30 September 2016: EUR100k). These were outstanding at the period end. On 8 November 2017, Frank Kenny was appointed to the Board of Hibernia REIT plc as a non-executive director (Note 32).
Thomas Edwards-Moss rents an apartment from the Group at market rent and paid EUR8k in rent during the period (30 September 2016: EUR9k).
32. Events after the reporting period
a. Budget 2018
In the 2018 Budget the Irish Government increased stamp duty on Irish commercial property transactions from 2% to 6%, with effect from 11 October 2017. This has led to an immediate one-off reduction in values of commercial investment properties of c. 4%. It remains to be seen what impact, if any, there will be on the investment market in the longer term.
Cushman & Wakefield, the Group's independent valuers, have calculated that the reduction in the value of the Group's property portfolio had the stamp duty change been in place on 30 September 2017 would have been EUR53.7m. This represents a 4.2% reduction in the value of the Group's portfolio as at 30 September and a 4.7% reduction in the value of the Group's office portfolio, including developments. The reduction in the value of the office portfolio is greater than 4% because of the residual methodology used in assessing the Group's development assets: the current value of an asset under development is calculated by reference to the estimated gross development value ("GDV") of the asset when completed less the expenditure required to complete and a developers' profit margin. The percentage reduction in the GDV as a result of the stamp duty is magnified in the percentage reduction in the current value of the site given that this is generally less than the GDV. Secondly, if the site was sold during development, stamp duty would also need to be charged on the value of the site: this stamp duty "double count" also increases the impact of the stamp duty increase on the value of development assets, though it will unwind upon completion of the development.
The impact on the EPRA NAV per share of the Group had the change been in effect on 30 September 2017 is estimated to be a reduction of approximately 7.8c per share from 155.3c to 147.5c, a 5.0% reduction. The stamp duty change has no impact on current distributable reserves and dividends as it relates to unrealised gains and losses on the portfolio.
30 September 31 March
2017 2017
Unaudited Audited
EUR'000 EUR'000
IFRS net assets at end of period 1,079,044 1,013,852
Estimated impact of stamp duty increase (53,680) -
1,025,364 1,013,852
Ordinary shares in issue 692,347 685,452
Estimated additional shares for performance
related payments 2,702 7,603
Diluted number of shares ('000) 695,049 693,055
IFRS NAV per share (cents) 148.1 147.9
Reduction in IFRS NAV (7.8) -
30 September 31 March
2017 Unaudited 2017
Audited
EUR'000 EUR'000
EPRA net assets at end of period 1,079,214 1,013,969
Estimated impact of stamp duty increase (53,680) -
EPRA NAV 1,025,534 1,013,969
EPRA NAV per share (cents) 147.5 146.3
Reduction in EPRA NAV (7.8) -
b. Interim dividend
The Directors have declared an interim dividend of 1.1 cent per share or EUR7.6m on 6 November 2017 which will be paid on 25 January 2018 to shareholders on the register on 4 January 2018.
c. Appointment of Frank Kenny as non-executive director
On 8 November 2017, Frank Kenny, one of the founders of Hibernia, a senior adviser to the Group and one of the Vendors in the internalisation, was appointed to the Board as a non-executive director. He will continue in his role as senior adviser.
Other than these, there were no significant events after the reporting date.
Supplementary information
Alternative performance measures (unaudited)
The Group has applied the European Securities and Markets Authority (ESMA) "Guidelines on Alternative Performance Measures" in these half-yearly results. An alternative performance measure is a financial measure of financial or future performance, position or cashflows of the Group which is not a measure defined by 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 Rental income Annualised rent of the
portfolio adjusted for
the inclusion of rent
that is subject to a
rental incentive such
as a rent-free period
or reduced rent year.
EPRA Earnings IFRS Profit after tax Note 16 and below
EPRA Earnings per share IFRS earnings per share Note 16 and below
("EPRA EPS")
EPRA NAV IFRS NAV Note 27
EPRA NAV per share IFRS NAV per share Note 27
Group Loan to value n/a Below
"LTV"
Interim dividend per Dividend per share Note 15
share
Net debt Financial liabilities Below
Passing rent Rental income Annualised gross property
rent receivable on a
cash basis as at the
reporting date.
Proforma IFRS NAV - IFRS NAV Note 32
cent per share
Proforma EPRA NAV - IFRS NAV Note 32
cent per share
Total property return n/a Total property return
is the return for the
period of the property
portfolio (capital and
income) as calculated
by MSCI, the producers
of the MSCI/IPD Ireland
Index.
Calculation of EPRA earnings:
Six months ended Six months
30 September ended 30 September
2017 Unaudited 2016 Unaudited
EUR '000 EUR '000
IFRS Profit/(loss) for the period
after taxation 70,604 32,296
Exclude:
Changes in fair value of investment
properties (61,626) (24,342)
Profit or loss on disposals of non-core
assets 1 (86)
Income tax on profit or loss on disposals - 113
Fair value of derivatives 45 8
EPRA Earnings 9,024 7,989
Weighted average number of shares
Basic 688,900 683,351
Potential shares to be issued re contingent
payments 2,702 831
Diluted number of shares 691,602 684,182
EPRA Earnings per share - (cent) 1.3 1.2
Diluted EPRA earnings per share (cent) 1.3 1.2
Adjusted EPRA earnings:
Six months ended Six months
30 September ended 30 September
2017 Unaudited 2016 Unaudited
EUR '000 EUR '000
EPRA earnings as calculated above 9,022 7,989
Prepaid remuneration amortised 2,222 2,222
Performance related payments 3,069 659
Underlying earnings excluding effects
of management charges 14,313 10,870
Weighted average number of shares 688,900 683,351
Adjusted basic EPRA earnings per
share - (cent) 2.1 1.6
Net Debt and LTV
As at 30 September As at 31 March
2017 Unaudited 2017
Note Unaudited
EUR'000 EUR'000
Financial liabilities 25 198,086 171,138
Add: Arrangement fees 2,323 3,718
Deduct: Accrued interest
payable (813) (1,450)
Cash and cash equivalents (18,624) (18,148)
Net debt at period end 180,972 155,258
Investment Properties at
period end 18 1,265,607 1,167,387
Loan to value ("LTV") ratio 14.3% 13.3%
Directors and Other Information
Directors Daniel Kitchen (Chairman)
Colm Barrington (Senior Independent Director)
Thomas Edwards-Moss (CFO)
Stewart Harrington
Frank Kenny (appointed 8 November 2017)
Kevin Nowlan (CEO)
William Nowlan (resigned 25 July 2017)
Terence O'Rourke
Company Secretary Sean O'Dwyer
Assistant Secretary Sanne Corporate Administration Services Ireland
Limited t/a Sanne
4(th) 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
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
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 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 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.
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.
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.
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 "MSCI/IPD Index")
Lease incentive is any consideration or expense, borne by the Group, in order to secure a lease.
LTIP or Long-Term Incentive Plan 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.
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.
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 MSCI/IPD Ireland Index.
WAULT is weighted average unexpired lease term and is variously calculated to break, expiry or next review date
(1) Net of capex and acquisition costs
(2) Developments include 1WML which completed at the end of August 2017
(3) Total property return is the return of the property portfolio (capital and income) as calculated by MSCI, the producers of the MSCI/IPD Ireland Index.
(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) Assuming 6% stamp duty and no finance costs
(6) 57k sq.ft. of entire 2DC (73k sq.ft.) is refurbished space
(7) Included pre-let refurbishments, residential income net. Excluding Iconic arrangement in Clanwilliam
(8) Excludes refurbishment and development projects
(9) Net of income smoothing
(10) 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.
(11) Estimated Rental Value ("ERV")
(12) Technology, Media and Telecommunications
(13) Comprising the Business Review and Principal Risks and Uncertainties
(14) EPRA: European Public Real Estate Association
(15) Average ERV per two bed apartment. C&W has used gross yields excluding acquisition costs to value the properties while in March 2017 CBRE used net. This does not significantly impact on the valuation of the properties. The lowest equivalent yield is Lime street which was valued by CBRE previously on a vacant possession basis and is now valued on a yield basis. Dundrum properties (Dundrum View and Block 3, Wyckham Point) represent over 90% of the residential value and the lowest yield at these properties is 5.81% on a gross basis.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
November 16, 2017 02:01 ET (07:01 GMT)
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