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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 : 1111P
Hibernia REIT PLC
24 May 2018
Preliminary Results
For the financial year to 31 March 2018
24 May 2018
Hibernia REIT plc ("Hibernia", the "Company" or the "Group") today announces its preliminary results for the financial year to 31 March 2018. Highlights for the financial year:
Strong financial performance despite stamp duty increase, outperforming Dublin market
-- Portfolio value of EUR1,308.7m, up 6.6%([1]) in the year (developments up 18.3%(1,[2]) ) -- 12-month total property return([3]) (,4) of 11.6% vs IPD Ireland Index of 6.8%
-- EPRA NAV([4]) per share of 159.1 cent, up 8.7% in the year and 2.4% in H2 (7.4% excl. stamp duty change)
-- Net rental income of EUR45.7m, up 15.1% on prior year (March 2017: EUR39.7m) -- Profit before tax of EUR107.1m including revaluation surplus (March 2017: EUR119.0m) -- EPRA EPS(4) of 2.8c, up 27.3% on prior year (March 2017: 2.2c)
Disciplined and profitable recycling of capital, enhancing portfolio
-- Sale of three smaller assets for EUR35.8m, prices in aggregate 20.6% ahead of Sept 2017 carrying values
-- Acquisitions totalling EUR39.1m made, primarily
o 77 SJRQ: 34,000 sq. ft. office purchased and simultaneously let, driving immediate valuation gain
o Gateway: 31.3 acres adjacent to existing site purchased
Development programme delivering and pipeline projects progressing
-- Two schemes, 1WML and 2DC, completed in the year, delivering 197,000 sq. ft. of Grade A offices and profit on cost of >65% (at completion)
-- Three committed schemes totalling 222,000 sq. ft. Grade A offices now in progress
o 1SJRQ and 2WML (172,000 sq. ft.) both delivering by end of 2018, completing the Windmill Quarter
o Cumberland Place Phase II (50,000 sq. ft., H1 2020 completion) committed in May 2018
-- Progress made with longer-term pipeline of four schemes
o Preparing and optimising the three pipeline office schemes totalling 505,000 sq. ft. post completion
o Gateway Land holding now 45.4 acres, planning application made for new access road
Income and WAULT of portfolio increasing due to new lettings and rent reviews
-- Annual contracted rent roll(4) now EUR56.0m and "in-place" office portfolio WAULT to earlier of break / expiry now 7.3 years, up 15.9% and 9.0% in the year, respectively, driven by:
o EUR5.7m of new lettings in completed schemes with avg. term to earlier of break / expiry of 11.4 years
o EUR1.3m of rent reviews settled with an average uplift of 138%, in line with ERVs
-- Acquired "in-place"([5]) CBD offices have avg. rents of EUR39psf, reversionary potential of 20.6% and an avg. period to earlier of rent review or expiry of 2.6 years
Financial strength to fund further investment
-- Net debt(4) at 31 March 2018 of EUR202.7m, LTV(4) of 15.5% (March 2017: EUR155.3m, LTV 13.3%)
-- Cash and undrawn facilities of EUR197.3m: EUR120.3m net of committed development spend
Dividend growing as income increases
-- Final dividend of 1.9 cent per share bringing total for year to 3.0 cent up 36.4% (2017: 2.2 cent)
-- Expect further growth from developments and capturing reversion via lease events / reviews
Kevin Nowlan, Chief Executive Officer of Hibernia, said:
"We are pleased to report another strong performance in the year. Our portfolio returns significantly outperformed the Irish market, helped in particular by our office developments and our residential assets, and our growing rental income has enabled us to propose increasing the dividend for the year by 36%. As guided, we recycled capital into assets which we believe will enhance our future portfolio returns and we expect to continue this process.
"With the completion of 1WML our first cluster of office buildings, the Windmill Quarter, is taking shape. When our developments at 1SJRQ and 2WML complete in the second half of 2018 this will total c. 400,000 sq. ft. of office space together with a gym, food and beverage and residential units across five adjacent buildings in the South Docks. It enables us to provide shared working areas and communal facilities, most notably the Townhall, and is proving popular with tenants.
"Looking ahead, we continue to be optimistic and are today announcing the commencement of the Phase II development at Cumberland Place. The supply of new offices in Dublin remains relatively constrained, particularly in the city centre market in which we specialise, and economic momentum in Ireland is strong, as is demand from domestic and international occupiers for office space in Dublin. These same dynamics are also in evidence in the residential rental market. We have a talented team, a portfolio rich in opportunity and flexible, low-cost funding available to support our plans."
Contacts:
Hibernia REIT plc +353 1 536 9100
Kevin Nowlan, Chief Executive Officer
Tom Edwards-Moss, Chief Financial Officer
Murray Consultants
Doug Keatinge: +353 86 037 4163, dkeatinge@murraygroup.ie
Jill Farrelly: +353 87 738 6608, jfarrelly@murraygroup.ie
About Hibernia REIT plc
Hibernia REIT plc is a Dublin-focused Real Estate Investment Trust ("REIT"), listed on Euronext Dublin and the London Stock Exchange, which owns and develops Irish property. All of Hibernia's portfolio of properties is in Dublin and it specialises in city centre offices.
The results presentation will take place at 9.00 am today: a conference call facility will be available to listen to the presentation live using the following details:
Ireland Toll: +353-1436-0959
Ireland Toll-Free: 1-800-930-488
Participant code: Hibernia
Disclaimer
This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements speak only as at the date of this Announcement. The Group will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.
Chief executive officer's Statement
We are pleased to report excellent results despite the increase in stamp duty, with our developments and residential assets being particularly strong performers. Our portfolio delivered a total property return (excluding acquisition costs) of 11.6%, outperforming our benchmark, the IPD Ireland Index, which returned 6.8%. EPRA NAV per share grew by 8.7% to 159.1 cent and we are proposing a 1.9 cent per share final dividend taking our total for the year to 3.0 cent, an increase of 36.4% over the prior year.
Growing Irish economy and favourable market conditions
Ireland continues to have one of the best performing economies in the euro area and unemployment has fallen to near pre-crisis levels. This, together with continuing FDI, is resulting in strong occupier demand, particularly from the TMT sector. Dublin office take-up set a new record in 2017 and remained above trend in Q1 2018, taking the overall vacancy rate to 6.2% by March 2018. The Grade A vacancy rate in Dublin's city centre, where c. 90% of Hibernia's portfolio is located was 3.9% at the same date. While supply of new offices has grown year-on-year since 2015, it remains relatively constrained and prime rents have continued to increase. With strong occupier demand, limited new supply and growing rents it has been unsurprising to see prime office yields compress and the same dynamics are in effect in the residential market. The increase in stamp duty on commercial property in the year somewhat reduced the valuation gains from the yield compression and rental growth: on a like-for-like basis our office portfolio grew 4.3% in value (excl. current developments) and our residential portfolio (not subject to the stamp duty increase) grew 13.4%.
Enhancing portfolio through disciplined and profitable recycling of capital
As guided, we made our first sales of investment properties in the year and invested the proceeds in new assets which we believe will improve the forward returns of the portfolio. We sold three of our smaller assets in the second half of the financial year for EUR35.8m, an aggregate of 20.6% ahead of their September 2017 valuations. In the case of the Chancery, D8, we had extended the unexpired lease term from two years at acquisition to eight years and saw little further asset management opportunities in the near and medium term. In the case of the two neighbouring assets in the South Docks, Hanover Street East and 11a Lime Street, these were acquired with the objective of building a consolidated land holding to undertake a future redevelopment: the sales price gave Hibernia the majority of the upside it could have expected from any such redevelopment with no risk.
We made acquisitions totalling EUR39.1m in the year. 77 Sir John Rogerson's Quay, in the improving eastern end of the South Docks, was acquired vacant and we agreed a simultaneous long lease with International Workplace Group plc ("IWG") generating an immediate valuation uplift. We also acquired 31.3 acres of agricultural land adjacent to our Gateway site, increasing our interest to 45.4 acres in an area with excellent transport links that we feel has significant future potential.
Development programme delivering and making progress with pipeline of future schemes
We successfully completed our committed schemes at 1WML and 2DC, delivering 197,000 sq. ft. of Grade A office space and some ancillary space and generating an aggregate profit on cost in excess of 65% at completion. At 31 March 2018 over 96% of this space was let, with contracted rent of EUR11.5m. 1SJRQ and 2WML, our two committed developments at 31 March 2018, will deliver 172,000 sq. ft. of prime office space and remain on track for completion in late 2018. They are the final parts of the Windmill Quarter, our first cluster of five adjacent buildings in the South Docks comprising c. 400,000 sq. ft. of offices plus further retail (food & beverage), leisure and residential units centred around the communal facilities we are putting into Windmill Lane, most notably the Townhall. In May 2018, the Board approved the development of Phase II of Cumberland Place, which will deliver an additional 50,000 sq. ft. of new Grade A office space and which we expect to complete in the first half of 2020.
Following the approval of Cumberland Phase II, our longer-term development pipeline totals four schemes. The three office schemes, two of which have the scale to create similar clusters of buildings with shared facilities to the Windmill Quarter, are expected to deliver 505,000 sq. ft. of office space post completion and we are working to optimise our plans for them. At Gateway, our interest has been enhanced by the additional land we have acquired and we are assessing our options to enhance value.
Income and WAULT increasing and driving growing dividend
Contracted rent grew by 15.9% to EUR56.0m per annum and our office WAULT to the earlier of break or expiry grew 9.0% to 7.3 years. The key driver of this has been the lettings made at the two developments which completed in the year, 1WML and 2DC, which added EUR5.7m of contracted rent with WAULT to break of 11.4 years. In addition, we successfully concluded four rent reviews, adding EUR0.7m to contracted rent, an uplift of 138% on existing rent and in line with ERVs.
EPRA earnings grew 29.4% to EUR19.4m (2.8 cent per share) for the financial year as a result of this activity and the Board has proposed a final dividend of 1.9 cent per share, bringing the dividend for year to 3.0 cent, up 36.4% on prior year. We see potential for further growth as our committed and near term developments, which are unlet at present and have an ERV of EUR12.7m, are leased up and as we capture the EUR6.0m of reversionary potential in our acquired "in-place" office portfolio, which has an average period to earlier of review or expiry of 2.6 years.
Moving towards target leverage but still substantial investment capacity
We continue to make progress towards our through-cycle leverage target range of 20-30% LTV: net debt at 31 March 2018 was EUR202.7m, a loan to value ratio of 15.5% (March 2017: 13.3%). The EUR47.4m increase in net debt in the year was primarily due to development expenditure, which totalled EUR43.9m, and there remains a further EUR77m of committed development expenditure, most of which will occur in the year to March 2019. Net of this committed development spend we have cash and undrawn facilities of EUR120.3m available. We are looking at options to diversify our sources of debt funding and extend average maturity dates.
Outlook
The supply of new offices in Dublin remains relatively constrained, particularly in the city centre market in which we specialise, and economic momentum in Ireland continues to be strong, as does demand from domestic and international occupiers for office space in Dublin. These same dynamics are also in evidence in the residential rental market. We are positive on our prospects: we have a talented team, a portfolio rich in opportunity and flexible, low-cost funding available to support our plans.
Kevin Nowlan, Chief Executive Officer
Market Review
General economy
Ireland again had one of the best performing economies in the euro area in 2017, with GDP growth for the year forecast at 8.1%, as activity returned to pre-crisis levels (source: CSO, Goodbody). The Department of Finance ("DoF") recently upgraded its forecasts for GDP growth in 2018 and 2019 to 5.6% and 4.0%, respectively (previously 3.5% and 3.2%). Core domestic demand is forecast to grow by 2.8% in 2017 (source: Goodbody) and is expected to average 4.3% per annum for the next two years, supporting further GDP growth (source: Central Bank of Ireland). The unemployment rate fell to 5.9% in April 2018, the first time in 10 years it has been below 6%, and the economy is nearing practical full employment, which is likely to create upward pressure on wages in the near term (source: Goodbody, CSO).
Notwithstanding current and capital spending increases of 4% and 9%, respectively, the Government budget deficit reduced to 0.2% of GDP in 2017 (2016: 0.7% deficit) as tax revenues increased (source: Goodbody). Ireland's improving fiscal health should help the execution of the Government's National Development Plan, an important programme of investment in Ireland's infrastructure network for the long term.
The uncertainty around the terms of the UK's departure from the EU and the impact of the recent US tax reforms remain the key external risks for the Irish economy. To date there has been little discernible negative impact from either: an additional 4,700 IDA-sponsored jobs were added in Dublin in 2017 (3,300 in 2016) while 1,100 jobs were added in Q1 2018 (source: Davy, Goodbody). Nonetheless, while the potential upside for Dublin from Brexit has been discussed previously, the longer-term implications of it and the US tax changes for Dublin remain less clear.
Irish property investment market
In the 12 months to 31 March 2018 the MSCI Ireland Property Index (the "Index") delivered a total return of 6.8% (March 2017: 11.2%). Over 97% of the Index by value comprises commercial property, which was negatively impacted by the trebling of stamp duty on commercial property transactions in Ireland from 2% to 6% which came into effect in October 2017. Excluding the stamp duty change, the Index would have delivered capital growth of c.6% in the year to March 2018 rather than 2.1% (March 2017: 6.2%). The office sector delivered a total return of 7.1% in the 12 months to March 2018 and capital growth of 2.6%. This capital growth came from ERV growth and yield compression in broadly equal measure.
The immediate impact of the stamp duty increase was a reduction in the value of commercial property of around 4%. However, it has been difficult to determine any notable impact on investment volumes: although the EUR2.6bn of commercial property transactions in Ireland in 2017 was lower than the EUR4.5bn of transactions in 2016 this decrease was expected as the market continued to move out of its deleveraging phase and Q4 2017 (i.e. after the change) saw 48% of all the investment volumes in the year. Q1 2018 volumes were relatively strong at c.EUR0.9bn, helped by the completion of three large transactions of over EUR100m each (source: CBRE).
Prime office yields compressed from 4.65% to 4.00% in 2017 and have remained stable in Q1 2018 (source: CBRE). Investor appetite for prime assets remains strong although the scarcity of product has led some investors to shift to the suburban market and forward-funding transactions are becoming more common (source: Knight Frank). In addition, appetite for alternative property classes such as private rented sector residential ("PRS") and student accommodation has grown, with PRS witnessing net yield compression from 4.80% to 4.25% during the year to March 2018 (source: CBRE).
Office occupational market
Take-up in the Dublin office market in 2017 reached a record high of 3.6m sq. ft., well ahead of the five and 10-year averages of 2.7m and 2.1m, respectively. Despite some large suburban lettings, the city centre accounted for 61% of take-up. Q1 2018 saw a continuation of this trend with take-up of 0.7m sq. ft., up substantially on the same period in 2017 (source: Knight Frank). While the Dublin office rental market is usually dominated by relatively small leasing deals, 2017 witnessed larger than usual lettings with 57% of take-up (by area) comprising lettings of greater than 50,000 sq. ft.. This trend has also continued into 2018 with two deals greater than 50,000 sq. ft. in Q1 (source: Knight Frank).
TMT companies accounted for 51% of take-up in 2017 in the Dublin office market, followed by financial services firms (20%) and state institutions (10%) (source: Knight Frank). There has also been significant activity in the serviced office market in Dublin in the past year, as international firms such as WeWork and IWG have begun to establish significant presences: 3.2% of take-up in 2017 went to serviced office operators (source: Knight Frank). While less evident than the Brexit-related moves (and potential moves) to Dublin by UK-based financial and professional services firms, we believe it is investment decisions by technology firms that are likely to have the bigger impact on the Dublin office market ("latent Brexit"): these companies are highly reliant on sourcing skilled labour, often from overseas - something that Brexit and the current US administration are making less certain in those countries. We believe this trend is one of the drivers of the strong take-up in Dublin over the past 18 months (source: CBRE).
The overall Dublin office vacancy rate fell to 6.2% in the quarter to March 2018 and in the city centre (where 88% of Hibernia's portfolio is located) the Grade A vacancy rate is now 3.9% (source: Knight Frank). While the new supply delivered in Dublin has grown year on year since 2015, the strong tenant demand has led to continued rental growth with prime office rents increasing from EUR62.50psf to EUR65.00psf in 2017 and remaining at that level at the end of Q1 2018.
Office development pipeline
Following the delivery of the first new office developments in Dublin in five years in 2016, 2017 saw growth in supply with a total of 1.4m sq. ft. delivered, over 90% of which has now been let (source: Hibernia). 2.3m sq. ft. is expected to be delivered in Dublin in 2018, of which 1.4m sq. ft. is already let, and 1.8m sq. ft. is expected to be delivered in the CBD. Between the start of 2018 and the end of 2021 we expect that 7.4m sq. ft. of space will be delivered in Dublin, with 69% of this (5.1m sq. ft.) in the CBD. At the end of Q1 2018, 4.4m sq. ft. of the aforementioned 7.4m sq. ft. was under construction. The majority of the expected CBD delivery between the start of 2019 and 2021 will be in the IFSC and North Docks areas as available sites in the Traditional Core and South Docks become increasingly scarce. Finance for speculative development is still limited, which is delaying some supply.
Residential sector
Supply of new housing is still below the Government's target of delivering 25,000 homes per annum in the period to 2021 (source: Rebuilding Ireland/Government of Ireland) but completions grew to 19,271 units in 2017, up from 14,932 in 2016: in the Greater Dublin Area completions were up 47% and commencements were up 18% in 2017, to 8,576 and 1,738, respectively (source: Department of Housing). In an attempt to improve the viability (and therefore delivery) of apartments which accounted for only 25% of the units delivered in 2017 (source: Department of Housing), the Department of Housing, Planning and Local Government published updated design standards for new apartments in early 2018. A study commissioned by the same Department indicated that these measures reduced the build cost of an apartment scheme by 15%. Despite these measures, viability remains challenging at affordable rental levels.
A lack of available housing rental stock remains, particularly in Dublin where just 1,250 units of rental stock were available as at April 2018, a reduction of 11% year-on-year (source: DAFT). Rents in Dublin are up 12.4% in the 12 months to March 2018 and are now 30% above the previous peak (source: DAFT). On the sales side, house prices in Dublin are up 13% in the 12 months to February 2018, although they remain 23% off their previous peak (source: Residential Property Price Index). House price growth of c.9% is forecast for 2018, given the current market dynamics (source: Goodbody).
Business Review
Acquisitions and disposals
Hibernia's net acquisition spend in the year was EUR3.3m including costs (2017: EUR85.4m), comprising two material acquisitions and the disposal of three investment properties as we started to recycle capital into new opportunities as previously guided.
Acquisitions
-- 77 Sir John Rogerson's Quay, South Docks ("77 SJRQ"): the 34,000 sq. ft. office building was bought in February 2018 for EUR30.7m. The building was sold with vacant possession but we agreed a simultaneous 25-year lease for the entire building to International Workplace Group plc ("IWG") creating an immediate valuation gain
-- Gateway lands, D22: 31.3 acres of land (zoned for agriculture) adjacent to our Gateway site was purchased in H2 2017 for EUR6.2m. This acquisition increased Hibernia's interest in the Newlands Cross area to 45.4 acres and, as described in more detail in the developments section below, we believe it has significant future potential
Disposals
-- The Chancery, D8: the 35,000 sq. ft. office building and four adjoining apartments were sold in December 2017 for EUR23.8m, equating to a net initial yield of 5.9% for the office accommodation. The ungeared IRR for Hibernia since acquisition in 2014 was over 17%
-- Two small assets in the South Docks: Hanover Street East, a 13,000 sq. ft. office building, and 11a Lime Street, a neighbouring house, were sold in February 2018 for EUR12m, significantly ahead of their September 2017 valuations. The assets had contracted income of EUR0.2m per annum and were acquired in 2015 for EUR4.8m with the objective of building a consolidated land holding to undertake a future redevelopment. The sales price gave Hibernia the majority of the upside it could have expected from any such redevelopment with no risk, and an ungeared IRR of 40%
Portfolio overview
As at 31 March 2018 the property portfolio consisted of 32 investment properties valued at EUR1,309m([6]) (31 March 2017: 28 investment properties valued at EUR1,167m)(6) , which can be categorised as follows:
Hot Features
Premium
% uplift % uplift
Value since since Mar
as at Mar 17 17 Equivalent
Mar excl. incl. Yield Passing
18 (all % of new acquisitions new acquisitions on value rent
assets) portfolio (1) (1) (%) (2) (EURm)
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
1. Dublin
CBD Offices
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
Traditional
Core EUR436m 33% 3.7% 3.6% 5.3%(3) EUR21.6m
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
IFSC EUR261m 20% (0.1%) (0.1%) 5.1% EUR12.2m
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
South Docks EUR322m(4) 25% 9.8% 9.9% 4.8% EUR10.1m
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
Total Dublin
CBD Offices EUR1,019m 78% 4.3% 4.5% 5.1%(3) EUR43.9m
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
2. Dublin
CBD Office
Development
(5) EUR134m 10% 19.8% 19.8% - -
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
3. Dublin
Residential
(6) EUR138m 11% 13.4% 13.3% 4.2%(7) EUR5.6m(10)
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
4. Industrial EUR18m 1% (3.7%) (8.7%) 3.7%(8) EUR0.7m
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
Total Investment 5.0%(3)
Properties EUR1,309m 100% 6.6% 6.6% (7) (9) EUR50.2m(10)
------------------ ----------- ----------- ------------------ ------------------ ----------- -------------
1. Includes capex
2. Yields on unsmoothed values and excluding the adjustment for South Dock House owner occupied space
3. Harcourt Square yield is based on the total value which includes residual land value 4. Excludes the value of space occupied by Hibernia in South Dock House 5. Includes 2WML, 1SJRQ & Cumberland Phase 2 6. Includes 1WML residential element (Hanover Mills)
7. These are net yields assuming 80% net to gross. C&W has valued Wyckham Point, Dundrum View, Cannon Place and Hanover Mills on a gross yield basis ex acquisition costs: gross initial yield is 4.9% and gross reversion is 5.2%
8. Current rental value assumed as ERV as this asset is now being valued on a price per acre basis
9. Excludes all CBD office developments 10. Residential rent on a net basis
11. An Alternative Performance Measure ("APM"). The Group uses a number of such financial measures to describe its performance which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see "Supplementary information" at the end of this report.
The office element of our portfolio, which comprises 88% by value and 89% of our contracted income had the following statistics at 31 March 2018:
WAULT
Contracted to review WAULT
rent ERV (1) to break/expiry
% of
% of rent
next MTM
% of rent (2)
rent review at next
upwards cap lease
(EURm/EURpsf) (EURm/EURpsf) (years) (years) only & collar event
--------------- --------------------- ----------------- ------------ ------------------ --------- ---------- ---------
Acquired
"in-place"
office EUR35.1m
portfolio EUR29.1m(EUR39psf) (EUR48psf) 2.6yrs 5.1yrs 37% - 63%
--------------- --------------------- ----------------- ------------ ------------------ --------- ---------- ---------
Completed
office
developments EUR20.5m EUR20.6m
(3) (EUR51psf) (EUR52psf) 4.1yrs 10.4yrs - 35% 65%
--------------- --------------------- ----------------- ------------ ------------------ --------- ---------- ---------
Whole office EUR49.6m EUR55.7m
portfolio (EUR43psf) (EUR49psf) 3.2yrs 7.3yrs 22% 14% 64%
--------------- --------------------- ----------------- ------------ ------------------ --------- ---------- ---------
1. To earlier of review or expiry
2. Mark to Market ("MTM")
3. 1 Cumberland Place, SOBO, 1DC, 2DC & 1WML
Our focus on increasing portfolio income and extending unexpired lease terms continues. We are achieving this through the completion and letting of new office developments and through rent reviews and lease renewals in the "in-place" portfolio. In the year we:
-- Added EUR5.7m to office portfolio income with average term certain of 11.4 years through the letting of the two developments that completed in the year (see further details in next section below)
-- Successfully agreed four rent reviews, adding a further EUR0.7m to contracted income, an uplift of 138% and in line with ERV. The acquired "in-place" office portfolio has an average period to the earlier of rent review or expiry of 2.6 years and reversionary potential of 20.6% (at valuers' ERVs) giving us further potential to enhance portfolio income and duration though rent reviews and lease renewals.
The "in-place" office portfolio vacancy rate was 3% at 31 March 2018 (31 March 2017: 3%). The vacancy rate rose to 10% at 30 September 2017 mainly due to the completion of 1WML, which was only c. 50% let at that date, and has since reduced as the remaining space in the building has been let.
Developments and refurbishments
Schemes completed
We completed two schemes in the year totalling 197,000 sq. ft. of Grade A office space (see Asset Management section below for further details of the lettings at these schemes).
-- 1 Windmill Lane ("1WML"), South Docks: the development of 124,000 sq. ft. of new office space, 7,000 sq. ft. townhall and reception, 8,000 sq. ft. of retail and 14 residential units, was completed on time and on budget in late August 2017, delivering a profit on cost of over 80% (post stamp duty and excluding finance costs). The building is now over 96% let and is yielding 9.6% on cost
-- Two Dockland Central ("2DC"), IFSC: the refurbishment of 57,000 sq. ft. of office space (out of total building of 73,000 sq. ft.) was completed on schedule and within budget in November 2017. It delivered a profit on cost of over 35% (post stamp duty change and excluding finance costs) and is now fully let with a yield on cost in excess of 7% (net of dilapidations received)
Committed development schemes
At 31 March 2018, we had two committed schemes in progress which will deliver c. 172,000 sq. ft. of new and refurbished Grade A office space by the end of 2018: none of this is pre-let currently.
-- 1 Sir John Rogerson's Quay ("1SJRQ"), South Docks: the 112,000 sq. ft. office building is now largely enclosed and the scheme remains on schedule for completion in Q3 2018.
-- 2 Windmill Lane ("2WML", formerly the Hanover Building), South Docks: the office tenant (BNY Mellon) left the building at the end of March 2017 and the retail tenant (Spar) left in November 2017: the redevelopment and extension of the building, which will deliver 60,000 sq. ft. of office space and a 12,000 sq. ft. gym, is expected to complete in late 2018
These two committed schemes will complete the Windmill Quarter, Hibernia's first cluster of office buildings, which will comprise c. 400,000 sq. ft. of office space upon completion. One of our principal motivations in creating the cluster was to be able to provide some communal working and leisure areas at affordable prices for our tenants in multi-let buildings. In the case of the Windmill Quarter, this is centred around the Townhall area in 1WML and we are also bringing food & beverage units and a gym to the cluster.
In May 2018 the Board approved the development of Phase II of Cumberland Place, D2. This scheme, which is expected to complete in H1 2020, will deliver 50,000 sq. ft. of new Grade A office space. The building will be at the front of our existing 1 Cumberland Place and has the potential either to link into the existing reception or to be separately accessed, with additional flexibility to interlink certain floors to the existing building if required.
At 31 March 2018 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (222,000 sq. ft.) in the committed developments 1SJRQ, 2WML and Cumberland Place Phase II of EUR54.94 per sq. ft. and were assuming an average yield of 4.87% upon completion: based on these assumptions they expect a further c. EUR19m of development profit (excluding finance costs) to be realised through the completion and letting of these schemes. A 25-basis point movement in yields across the properties would make c. EUR12m of difference to the development profits, and a EUR2.50 per sq. ft. change in estimated rental value ("ERV") would result in a c.EUR10m difference. If current market conditions prevail, we would expect these yields to tighten once the buildings are completed and let.
Please see further details on the development schemes below:
Total Est.
area total
post cost Office Expected
completion Full (incl. ERV practical
(sq. purchase Capex/Est. land) ERV psf completion
Sector ft.) price capex EURpsf (1) (1) ("PC") Date
------------- -------- ------------ --------- ----------- ------------- ---------- ---------------- ------------------------------------------
Schemes completed in 12 months to 31 Mar 18
--------------------------------------------------------------------------------------------------------------------------------------------------------
1WML Office 124k EUR25m EUR53m EUR554psf EUR7.6m EUR52.59psf
office (3) (3) (4) (5) (4) * Completed in August 2017
8k
retail(2)
7k * Delivered profit on cost of >80%(6)
reception
14 resi.
units * Now 96% let
------------- -------- ------------ --------- ----------- ------------- ---------- ---------------- ------------------------------------------
* Completed in November 2017
* Delivered profit on cost >35%(6)
Two
Dockland 73k (7) EUR11m EUR760psf
Central Office office EUR46m (8) (9) EUR4.1m EUR52.37psf(10) * Now fully let
------------- -------- ------------ --------- ----------- ------------- ---------- ---------------- ------------------------------------------
197k
office
8k
retail(2)
7k
Reception
Total 14 resi.
completed units EUR71m EUR64m(11) EUR11.7m
----------------------- ----------- --------- ----------- ------------- ---------- ---------------- ------------------------------------------
Committed schemes
--------------------------------------------------------------------------------------------------------------------------------------------------------
60k office
2WML Office 12k gym EUR21m EUR22m EUR678psf(4) EUR3.4m EUR53.00psf Q4 2018
------------- -------- ------------ --------- ----------- ------------- ---------- ---------------- ------------------------------------------
112k
office
8k food EUR639psf
1SJRQ Office & beverage EUR18m EUR58m (4) EUR6.6m EUR56.19psf Q3 2018
------------- -------- ------------ --------- ----------- ------------- ---------- ---------------- ------------------------------------------
Cumberland
Phase
2 Office 50k office EUR0m EUR27m EUR540psf(4) EUR2.7m EUR54.48psf H1 2020
------------- -------- ------------ --------- ----------- ------------- ---------- ---------------- ------------------------------------------
222k
office
20k
Total retail/gy
committed m EUR39m EUR107m EUR12.7m
----------------------- ----------- --------- ----------- ------------- ---------- ---------------- ------------------------------------------
1. Per C&W valuation at 31 March 2018
2. Incl. 1k sq. ft. basement store
3. Hibernia est. all in cost of 1WML on 100% basis is EUR78m (i.e. EUR25m 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 EUR78m (EUR37m + EUR28m + EUR13m = EUR78m)
4. Office demise only 5. Commercial (incl. reception/townhall) and residential net 6. Assuming 6% stamp duty and no finance costs at Sep-17 values 7. 57k sq. ft. refurbished out of total 73k sq. ft. 8. EUR9.4m net of dilapidations received 9. Est. total cost psf is net of dilapidations 10. For entire 73k sq. ft. 11. EUR62.4m net of dilapidations received at 2DC
Development pipeline
Following the approval of Cumberland Place Phase II as a committed project, there are now three office schemes in the future pipeline (treating Clanwilliam Court and Marine House as one project) which, if undertaken, would deliver an estimated 505,000 sq. ft. of high quality office space upon completion. Two of these future projects, Clanwilliam Court / Marine House and Harcourt Square, provide us with opportunities to create clusters of office buildings with shared facilities similar to the Windmill Quarter referenced above.
In the longer term there is also development potential for the 45.4 acres we now own at Gateway: we think it is likely this would take the form of a mixed-use scheme and hence we have removed the nominal 115,000 sq. ft. of offices previously allocated to Gateway from our pipeline. Please see further details on the development pipeline below:
Current
area Area post Full
(sq. completion purchase
Sector ft.) (sq. ft.) price Comments
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
Longer
term
offices
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
Blocks Office 139k 200k EUR80m
1, 2 * Refurbishment/redevelopment opportunity
& 5 post-2020/2021
Clanwilliam
Court
and Marine * Potential to add significantly to existing NIA (2)
House across all four blocks and create an office cluster
similar to Windmill Quarter
* Have applied for planning to refurbish Marine House
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
Harcourt Office 117k 277k EUR72m
Square on * Lease to OPW until Dec 22
1.9
acres
* Site offers potential to create cluster of office
buildings and shared facilities
* Planning in place for 277k sq. ft. redevelopment
* Seeking revised planning for up to 322k sq. ft.
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
One Office 22k >28k EUR20m
Earlsfort * Current planning permission for two extra floors
Terrace
* Also potential for redevelopment as part of the wider
Earlsfort Centre scheme
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
Total
longer-term
offices 278k 505k EUR172m
--------------------------- -------- ----------- -------- ------------------------------------------------------------
Mixed-use
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
Gateway Mixed-use 45.4 Unclear EUR17m
& Newlands acres * Strategic transport location
Cross (1)
Lands
* Potential for future mixed-use development
* Have applied for planning for new access road
-------------- ----------- -------- ----------- -------- ------------------------------------------------------------
Total 45.4
Mixed acres
-use (1) Unclear EUR17m
--------------------------- -------- ----------- -------- ------------------------------------------------------------
1. Currently 178k sq. ft. of industrial/logistics on 14.1 acres and 31.3 acres of agricultural land
2. Net Internal Area ("NIA")
Asset management
In the year to 31 March 2018 we added EUR8.9m to contracted rents through lettings and EUR0.7m though rent reviews, a total of EUR7.7m net of lease expiries, surrenders, sales and acquisitions increasing the contracted rent roll by 15.9% to EUR56.0m.
Summary of letting activity in the period
Offices:
-- 11 new lettings totalling 156,000 sq. ft. and generating EUR8.3m per annum of incremental new rent. The weighted average periods to break and expiry for the new leases were 11.4 years and 19.8 years, respectively
-- Four rent reviews concluded over 25,000 sq. ft. adding a further EUR0.7m of rent per annum: on average these rent reviews were 138% ahead of previous contracted rents and in line with ERVs
-- At present, we have one rent review under negotiation over EUR0.3m of contracted income
Residential:
-- 293 of the Company's 326 apartments are located in Dundrum and, in the period, average rents achieved in new lettings by the Company for two bed apartments in Dundrum were EUR1,799 per month vs average two bed passing rents of EUR1,758 per month
-- Letting activity and lease renewals at Dundrum generated incremental gross annual rent of EUR0.2m in the period (new leases signed on 72 apartments and leases renewed on 186 apartments). The total net income from the Dundrum residential properties during the year was EUR5.1m representing a net to gross margin in excess of 80%
-- The 14 residential units at 1WML, now known as Hanover Mills, have been let to Corporate City Apartments at a rent of EUR0.4m per annum for a term of 5 years
At 31 March 2018 the vacancy rate in the office portfolio was 3%.
Key asset management highlights
See also Developments and Refurbishments section above for further details.
1WML, South Docks
The development completed in late August 2017 and at 31 March 2018 the building was over 96% let, with office tenants including Informatica, Core Media and Pinsent Masons and the retail unit let to Spar. The 14 residential units have been let to Corporate City Apartments, a residential letting provider, on a five year lease. The contracted rent for the property is EUR7.5m per annum and the weighted average unexpired lease term for the commercial space is 11.6 years.
77 SJRQ, South Docks
Having acquired the 34,000 sq. ft. building in February 2018, the planned improvement works completed in late March for EUR0.3m and the 25 year lease to IWG commenced in early April 2018. IWG is paying initial rent of EUR1.8m per annum.
Cannon Place, D4
The tenants in the 16 units moved out during the year to enable remedial works to be carried out. The programme completed in early 2018. The building remained vacant at 31 March 2018: given its small scale Hibernia is considering disposing of the asset and recycling its capital into other opportunities.
Central Quay, South Docks
A ground floor office suite of c. 3,000 sq. ft. was let to Fragomen, a firm of solicitors, in June 2017 on a 10-year lease. The remaining vacant space on the ground floor (5,000 sq. ft.) and the third floor (12,000 sq. ft.) continues to be marketed.
Clanwilliam Court, Block 2 and Marine House, D2
In October 2017, the ESB leased the ground floor of Block 2 and second floor of Marine House (8,500 sq. ft. in total) on leases which run until 2020/21 (i.e. these terminate concurrently with other occupiers in the buildings) at a total rent of EUR0.4m per annum. In February 2018, 50 car parking spaces were let to Park Rite on a two year term for rent of EUR0.1m per annum.
The Forum, IFSC
Depfa Bank ("Depfa"), which occupies all 47,000 sq. ft. of office accommodation in the building and 50 car parking spaces, served notice of its intention to exercise its options to terminate its leasehold interests in March 2019. Depfa pays rent of EUR2.0m per annum (an average of EUR40 per sq. ft. for the office space). Hibernia is considering options for the building, with the March 2018 ERV of the offices well in excess of the passing rent.
Observatory, South Docks
We concluded rent reviews with Core Media and Realex in the year, adding EUR0.6m to our contracted annual rent. In aggregate the rents agreed were in line with ERV and represented an uplift of 121%.
Two Dockland Central, IFSC
The refurbishment works completed in November 2017 (see further detail above). As at 31 March 2018, the building was fully let to HubSpot, BNY Mellon, ENI, Fountain Healthcare and ALD Automotive with a contracted rent of EUR4.0m per annum and a weighted average term certain of 9.1 years.
Flexible workspace arrangement
The flexible workspace arrangement with Iconic Offices ("Iconic") in 21,000 sq. ft. of Block 1 Clanwilliam Court continues to operate well, with 100% of the workstations occupied and 92% of the available co-working memberships rented as at the end of March 2018.
Other completed assets
The remaining completed properties in the portfolio are close to full occupancy. The average period to rent review or lease expiry for the acquired "in-place" office portfolio (not including recently completed developments) is 2.6 years and the team is focused on the upcoming lease events and is working closely with our tenants.
Financial results and position
As at 31 March 31 March Movement
2018 2017
-------------------- ----------- ----------- ---------
IFRS NAV - cent
per share 160.6 147.9 +8.6%
--------------------- ----------- ----------- ---------
EPRA NAV(1) - cent
per share 159.1 146.3 +8.7%
Net debt (1) EUR202.7m EUR155.3m +30.5%
--------------------- ----------- ----------- ---------
Group LTV(1) 15.5% 13.3% +16.5%
--------------------- ----------- ----------- ---------
Financial period 31 March 31 March Movement
ended 2018 2017
Profit before tax
for the period EUR107.1m EUR119.0m (10.0)%
--------------------- ----------- ----------- ---------
EPRA earnings(1) EUR19.4m EUR15.0m +29.3%
--------------------- ----------- ----------- ---------
IFRS EPS 15.5 cent 17.4 cent (10.9)%
--------------------- ----------- ----------- ---------
Diluted IFRS EPS 15.4 cent 17.2 cent (10.5)%
--------------------- ----------- ----------- ---------
EPRA EPS (1) 2.8 cent 2.2 cent +27.3%
--------------------- ----------- ----------- ---------
Proposed final
DPS(1) 1.9 cent 1.45 cent +31.0%
--------------------- ----------- ----------- ---------
FY DPS(1) 3.0 cent 2.2 cent +36.4%
--------------------- ----------- ----------- ---------
(1) An alternative performance measure ("APM"). The Group uses a number of such financial measures to describe its performance, which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see "Supplementary information" at the end of this report.
The key drivers of EPRA NAV per share, which increased 12.8 cent from 31 March 2017 were:
- 19.3 cent per share from the revaluation of the property portfolio, including 8.1 cent per share in relation to development properties: the yield compression seen in the market helped the value of the Group's more prime office assets and its residential assets
- 2.8 cent per share from EPRA earnings in the period - 0.9 cent per share from profits on the sale of investment properties
- Payment of the FY17 final and FY18 interim dividends, which decreased NAV by 2.5 cent per share
- The increase in stamp duty rate in October 2017 reduced NAV by an estimated 7.7 cent per share
Net debt increased by EUR47.4m to EUR202.7m (LTV: 15.5%). Almost all of the increase related to development and refurbishment expenditure: net acquisition spend in the year was EUR3.3m and maintenance expenditure was c. EUR3m.
EPRA earnings were EUR19.4m, up 29.4% compared to the prior financial year. The uplift was principally due to increased rental income as a result of new lettings made at our developments in the financial year and a full year of income from lettings made in the prior year. Administrative expenses (excluding performance related payments) were EUR13.5m (March 2017: EUR12.8m). Performance related payments were EUR6.6m (March 2017: EUR8.2m) with the majority relating to relative performance fees earned due to the Group's outperformance of the MSCI/IPD Ireland index over the financial year.
Profit before tax for the period was EUR107.1m, a reduction of 10.0% over the prior year, mainly due to reduced revaluation gains in the financial year as a result of the increase in stamp duty on Irish commercial property transactions introduced in the 2018 Budget. This change, which took effect from 11 October 2017, increased the stamp duty rate from 2% to 6%. Cushman & Wakefield, the Group's independent valuers, calculated that the reduction in the value of the Group's property portfolio had the stamp duty change been in place on 30 September 2017 would have been 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.
Financing and hedging
As at 31 March 2018, the Group had net debt of EUR202.7m, a loan to value ratio ("LTV") of 15.5%, up from net debt of EUR155.3m (LTV of 13.3%) at 31 March 2017, primarily due to development expenditure.
As intended, the Group repaid the EUR44.2m non-recourse debt facility for Windmill Lane (the "1WML facility") in February 2018 once early repayment penalties expired. The facility was EUR17.5m drawn at the time of repayment and was refinanced using the Group's main debt facility, a EUR400m revolving credit facility ("RCF") which matures in November 2020. Since shortly after acquiring full control of 1WML in December 2016 the Group had used the RCF to fund capital expenditure on the scheme due to the comparatively high cost of the 1WML facility.
Cash and undrawn facilities as at 31 March 2018 totalled EUR197.3m or EUR120.3m net of committed capital expenditure. Assuming full investment of the available RCF funds in property, the LTV, based on property values at 31 March 2018, would be c. 27%. The Group's through-cycle leverage target remains 20 - 30% LTV.
The Group has a policy of fixing or hedging the interest rate risk on the majority of its drawn debt. As at 31 March 2018 it had interest rate caps and swaptions with 1% strike rates in place covering the interest rate risk on EUR244.7m of the RCF drawings. Half of this covers the period until November 2020 (when the RCF expires) and half was put in place during the year and covers the period from November 2017 to November 2021.
With a stable portfolio valued well in excess of EUR1bn, the Group is considering options to diversify its sources of debt funding and lengthen the average maturity of its debt.
Dividend
Following another substantial uplift in EPRA earnings (distributable income) in the year, the Board has proposed a final dividend of 1.9 cent per share (2017: 1.45 cent) which, subject to approval at the Group's AGM on 31 July 2018, will be paid on 3 August 2018 to shareholders on the register as at 6 July 2018. All of this final dividend will be a Property Income Distribution ("PID") in respect of the Group's tax-exempt property business.
The Group's policy is to pay out 85-90% of distributable income in dividends, with the interim dividend in a year usually representing 30-50% of the total regular dividends paid out in respect of the prior financial year. Together with the interim dividend paid of 1.1 cent per share, the total dividend for the year is 3.0 cent per share (2017: 2.2 cent) which represents 108% of the year's EPRA profits due to the larger than expected uplift in NAV and, as a result, performance fee.
Hibernia's Dividend Reinvestment Plan ("DRIP") remains in place, allowing shareholders to instruct Link, the Company's registrar, to reinvest dividend payments by the purchase of shares in the Company. The terms and conditions of the DRIP and information on how to apply are available on the Group's website.
Selected portfolio information
1. Top 10 "in-place" office occupiers by contracted rent and % of contracted "in-place" office rent roll
Contracted
rent EUR
Top 10 tenants 'm % Sector
--- ----------------------- ------------ ------ --------------------
The Commissioners
1 of Public Works 6.0 12.1% Government
Twitter International
2 Company 5.1 10.2% TMT
Hubspot Ireland
3 Limited 3.8 7.6% TMT
Banking and Capital
4 Bank of Ireland 2.9 5.7% Markets
5 TMT Tenant 2.8 5.7% TMT
Informatica Ireland
6 EMEA 2.1 4.3% TMT
Banking and Capital
7 Depfa Bank plc 2.0 4.1% Markets
Electricity Supply
8 Board 1.9 3.8% Government
Travelport Digital
9 Limited 1.8 3.7% TMT
10 IWG 1.8 3.6% Co-working
--- ----------------------- ------------ ------ --------------------
Top 10 total 30.2 60.9
Rest of portfolio 19.4 39.1
--- ----------------------- ------------ ------ --------------------
Total contracted
"in-place" office
rent 49.6 100.0
--- ----------------------- ------------ ------ --------------------
2. "In-place" office contracted rent by business sector
Sector EUR 'm %
TMT 20.7 41.9
Government 10.3 20.6
Banking & Capital
Markets 10.2 20.6
Professional
Services 4.1 8.3
Co-working 2.3 4.6
Insurance &
Reinsurance 1.0 2.0
Other 1.0 2.0
Total 49.6 100.0
------------------- ------- ------
3. "In-place" office contracted rent and WAULT progression
Mar-16 Increase Mar-17 Increase Mar-18
to Mar to Mar
-17 -18
-------------------- --------- --------- --------- --------- ---------
In-place office(1)
contracted rent EUR27.3m +39% EUR38.0m +31% EUR49.6m
-------------------- --------- --------- --------- --------- ---------
In-place office
WAULT (2) 4.3yrs +56% 6.7yrs +9% 7.3yrs
-------------------- --------- --------- --------- --------- ---------
In-place office
vacancy (3) 6% -3% 3% - 3%
-------------------- --------- --------- --------- --------- ---------
1. Excl. arrangement with iconic Offices at Clanwilliam
2. To earlier of break or expiry
3. By net lettable office areas. Office area only i.e. excl. retail, basement, gym, townhall etc.)
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results. A description of these principal risks and the steps which the Group has taken to manage them is set out below.
Residual
Risk
RISK Exposure Mitigation Impact Probability impact Comments
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Strategic risks
--------------------------------------------------------------------------------------------------------------------
Inappropriate The Group's The Group Unchanged Increasing Medium The Irish
business strategy carries out economy
strategy is not consistent strategic continues
with market reviews on to perform
conditions an annual strongly
affecting basis which with growing
the ability cover the numbers
of the Group next three in employment.
to deliver years. The GDP growth
its strategic Group pays in 2017
objectives. close attention is forecast
to economic at 8.1%
and market and for
lead indicators 2018 and
and uses its 2019 it
network of is forecast
contacts and at 5.6%
advisers to and 4%
ensure it respectively.
has the best Tenant
possible demand
understanding remains
of market strong,
conditions particularly
and likely from domestic
economic changes. and overseas
Budgets are companies
prepared and with existing
reviewed by bases in
the Board Dublin
each quarter taking
looking at up further
a rolling space for
three-year expansion.
period. The
Group also
assesses the
sensitivity
of its key
ratios to
changes in
the principal
assumptions
made and in
particular
assesses headroom
in negative
scenarios
for viability
purposes.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
market risks
--------------------------------------------------------------------------------------------------------------------
Weakening The value The Group Unchanged Increasing Medium Uncertainty
economy of the investment has set risk around the
portfolio appetite limits impact of
may decline for key operating the UK departure
and rental indicators. from the
income may The Group EU continues
reduce as intends to and the
a consequence maintain low impact of
of a drop leverage levels the recent
in levels throughout US tax reforms
of economic the cycle. also remains
activity The Group unclear.
in Dublin monitors economic Vacancy
and/or Ireland. lead indicators rates in
As a relatively and market Dublin were
small and developments low at 6%
"open" economy and undertakes at 31 March
Ireland regular financial 2018 and
is particularly forecasting take-up
sensitive and scenario remain strong.
to deterioration planning to The Group
in macro-economic help it to continues
conditions anticipate to increase
elsewhere. and react WAULTs through
to potential lease renewals
issues. and letting
of new space
completed,
thereby
reducing
the risk
of rental
income decreases
and vacancy.
------------------- ------------------ ------------------- ---------- ----------- -------- ---------------------
Under-performance Underperformance The Group Increasing Increasing Medium There was
of Dublin by the Dublin regularly record take-up
property office property reviews its in the Dublin
market market compared strategy and office market
to other asset allocation in 2017
Irish property to determine and the
sectors: if it remains trend has
to date appropriate. continued
all the Particular in 2018,
Group's emphasis is with a strong
investments placed on first quarter.
have been monitoring In addition,
within Dublin. its committed demand for
development office and
projects which residential
will be completed assets has
by the end led to yield
of 2018. compression
in the
financial
year ended
31 March
2018.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
development risks
--------------------------------------------------------------------------------------------------------------------
Poor execution Development The Group Unchanged Unchanged Medium The Group
of development projects has a Development completed
projects are not Committee two schemes
managed which closely in the year,
properly monitors projects, which are
causing the development now over
possible supply pipeline 96% let
delays, in Dublin and which
cost overruns and the rental completed
and/or failure market. The on time
to achieve Group's strategy and on budget.
expected in setting As at 31
rental levels, building contracts March 2018
all resulting is to fix the Group
in reduced pricing where had two
returns. feasible. committed
This, coupled schemes
with significant with a third
in-house experience added in
in managing May 2018,
large scale totalling
projects, 222k sq.
reduces ft. Two
construction of these
risk. are on track
to complete
by late-2018.
while the
third is
targeted
for H1 2020.
In the year
the Group
added to
the development
team to
ensure that
it remains
fully resourced
for the
Group's
pipeline
of development
projects.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
investment risks
--------------------------------------------------------------------------------------------------------------------
Poor investment Investment The Group Unchanged Unchanged Medium The Group
of capital returns has an experienced has a portfolio
or mis-timed that are Investment valued at
sale of below the Team which over
assets Group's is continually EUR1.3billion:
target rate assessing in the year
of return the various ended 31
as a result Dublin March 2018
of not sub-markets. it spent
reading/reacting The Group EUR39m principally
to the cycle closely monitors in two
correctly. current and acquisitions.
anticipated It sold
future economic three properties
conditions for EUR36m.
and reacts The Group
accordingly. expects
Prior to further
completing recycling
any acquisition of capital
extensive in future
due diligence years.
is undertaken.
Board approval
is part of
the investment
decision which
provides another
layer of scrutiny.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Excessive Excessive The Group Unchanged Increasing Low All the
concentration exposure maintains Group's
on single leading risk exposure investments
assets, to poor targets and are within
locations, performance limits regarding Dublin and
tenants or reduced concentration the majority
or tenant liquidity risks and are in the
sectors assesses its office sector.
portfolio The Group
regularly has built
against these. a balanced
portfolio
comprising
32 properties.
As at 31
March 2018
the largest
single asset
represented
11% of the
portfolio
by value
(11% as
at March
2017). The
portfolio's
top 10 tenants
account
for 61%
of the contracted
rent roll
as at March
2018 (67%
as at March
2017).
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
asset management risks
--------------------------------------------------------------------------------------------------------------------
Poor asset Failure The Group Unchanged Decreasing Low During the
management to maximise has dedicated financial
returns and experienced year, the
from investment Asset and Group has
portfolio Building Management re-branded
as a result teams which buildings,
of poor have been and increased
management expanded in tenant interactions
of voids, the year. including
breaks and The Finance completion
renewals, team actively of a tenant
leading monitors tenants satisfaction
to possible both in terms survey.
loss of of rent collection Action points
tenants and also for arising
and/or leases changes in from this
agreed at covenant strength. survey are
lower than The Group's being addressed.
Estimated separate building All of the
Rental Value management multi-let
("ERV"). subsidiary buildings,
Poor building manages all 13 in total,
management the Group's are under
can impact multi-let the direct
tenant buildings, management
satisfaction giving the of the Group.
and longevity Group direct Older stock
leading day-to-day continues
to loss interaction to be refurbished
of income. with its tenants. and let
Failure This ensures at or above
to understand the best service ERV. Sustainability
tenant to retain goals have
requirements tenants and been set
also risks help maximise to improve
loss of rental levels. environmental
income. impact and
work to
improve
this is
well under
way.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
finance risks
--------------------------------------------------------------------------------------------------------------------
Inappropriate Inappropriate The Group Unchanged Unchanged Low At 31 March
capital capital has a target 2018 the
structure structure loan to value Group indebtedness
for market may lead ratio of 20-30% remained
conditions to the Group through the modest with
being unable cycle and a LTV ratio
to meet under the of 16% (31
goals through investment March 2017:
being too policy is 13%), with
highly geared limited to committed
and incurring a 40% LTV capital
high interest ratio at expenditure
costs and incurrence: in the next
risking these are 24 months
covenant well below expected
breaches the debt covenant to increase
or being limits. In the LTV
under geared addition, ratio to
and thus any new facilities c. 20%.
limiting must be approved No covenant
returns. by the Board. breaches
Hedging have occurred
instruments in the period.
are used to The Group
limit the is considering
Group's interest options
rate exposure to diversify
on its long-term its sources
drawn debt. of debt
Active and funding
regular monitoring and extend
of debt covenants maturity
is undertaken dates which
as well as stood at
stress-testing 2.6 years
to see what at 31 March
downside scenarios 2018.
the Group
can withstand
without breaching
debt covenants.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Lack of Target returns The Group Decreasing Increasing Low At 31 March
available impacted, actively manages 2018 the
funds new investment its financial Group had
for investment limited requirements cash and
through and continues undrawn
lack of to monitor facilities
available availability totalling
funds meaning to ensure EUR197m,
the Group it is well-placed or EUR120m
is unable to take advantage net of committed
to exploit of market capital
opportunities investment expenditure
identified. opportunities (31 March
as they arise. 2017: EUR289
The Group or EUR150m).
actively reviews The Windmill
its portfolio facility
of properties was repaid
and considers in February
the disposal 2018. The
of those properties Group continues
that may no to monitor
longer offer capital
an adequate requirements
return. Any to ensure
proceeds received that future
can be used requirements
to reduce are anticipated
debt or fund and met
further within the
acquisitions. limits of
its leverage
targets.
During the
year the
Group sold
three properties
and acquired
two, spending
EUR3m net.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
people risks
--------------------------------------------------------------------------------------------------------------------
Loss or Ability The Group Unchanged Increasing Low With the
shortage to achieve has a remuneration expiry of
of key strategic system that the current
staff goals impacted is linked performance
or lack through closely to remuneration
of motivation loss of Group performance. arrangements
expertise Remuneration in November
or key personnel includes a 2018, the
or lack long-term Group has
of motivation incentive developed
of staff. element to a new Remuneration
The expiry help better Policy for
of the existing align employees' approval
remuneration interests by shareholders
structure with shareholders' at the AGM
in November and encourage in July
2018 and retention. 2018 and
the Engagement has consulted
implementation with staff with its
of a new at all levels, largest
structure improvements shareholders
is a particular in the office on this.
area of environment
risk this and an active
year. social calendar
encouraging
staff to interact
all help to
foster a positive
team spirit
and help to
ensure that
Hibernia is
a good place
to work.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
regulatory & tax risks
--------------------------------------------------------------------------------------------------------------------
Regulatory, Tax and The Management Unchanged Unchanged Low Risk remains
legislative, other regulatory Team and the unchanged
tax, changes Board spend and is managed
environmental can impact substantial proactively.
or planning returns. time, and A major
changes In 2017 retain external focus for
the Government experts as 2018 is
increased necessary, the improvement
stamp duty to ensure of sustainability
on commercial compliance measures.
property with current
from 2% and possible
to 6% which future regulatory
impacted requirements.
directly
on the value A separate
of the Group's Sustainability
investment Committee
properties. has been formed
Failure and actively
to comply monitors progress
with any in improving
legislative sustainability
or regulatory
changes
may also
result in
reputational
risk.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Failure Achievement Effective Unchanged Unchanged Low This is
to comply of strategic monitoring completed
with requirements goals impacted of REIT on a regular
of Irish through requirements basis and
REIT Regime inability compliance is the subject
to continue at a senior of review
as a REIT level with by our retained
and a greater review by tax advisers,
tax burden. Audit Committee. KPMG.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Loss of Risks can The Group Unchanged Decreasing Low The Group
life or include, has policies continues
injury but are and procedures to maintain
to staff, not limited in place for high standards
a contractor to, health health and of health
or member and safety safety. The and safety.
of the incidents Group has A comprehensive
public and/or loss regular risk health and
as a result of life assessments safety strategy
of an or injury and audits has been
accident to employees, to proactively prepared
at one contractors, address the with the
of the members key health assistance
Group's of the public & safety areas, of an external
buildings or tenants. including consultant.
Reputational employee,
damage through contractors,
failure tenant & public
to prevent safety. The
or effectively Group works
manage incidents to ensure
occurring. that all
contractors
engaged maintain
the highest
standards
of health
and safety
and have
appropriate
and adequate
insurance
in place.
All staff
who visit
work sites
and buildings
have to complete
the "safe
pass" course
in advance.
The Group
takes all
appropriate
actions to
ensure it
is not exposed
to uninsured
risks in respect
of all normal
insurable
risks in relation
to health
and safety.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Business risks
--------------------------------------------------------------------------------------------------------------------
An external Significant Within Dublin Increasing Increasing Low The threat
event damage to the Group of cyber
occurs the Group's monitors its security
(e.g. business geographic attacks
natural as a result exposure, has become
disaster, of such and maintains more prevalent
war, terrorism, an event. a balance over the
civil between various last number
unrest, sub-markets. of years.
cyber-attack) The Group We continue
which has developed to strengthen
significantly business continuity existing
and negatively plans, has policies
affects improved its and procedures
the Group's IT security and implement
operations measures during improvements
the year and to minimise
has insurance the threat
in place to of any such
cover catastrophic incidents.
events. In addition,
business
continuity
management
and crisis
management
plans are
reviewed
regularly.
------------------- ------------------ ------------------- ---------- ----------- -------- -------------------
Consolidated income statement
For the financial year ended 31 March 2018
Financial Financial
year ended year ended
31 March 31 March
2018 2017
Notes EUR'000 EUR'000
Total revenue 5 54,168 46,372
------------ ------------
Income
Rental income 49,075 42,519
Property expenses 6 (3,352) (2,838)
------------ ------------
Net rental income 45,723 39,681
Gains and losses on
investment properties 7 87,802 103,525
Other gains and (losses) 8 (41) 2,476
------------ ------------
Total income after revaluation
gains and losses 133,484 145,682
------------ ------------
Expense
Performance-related
payments 11 (6,599) (8,215)
Administration expenses 9 (13,517) (12,770)
------------ ------------
Total operating expenses (20,116) (20,985)
------------ ------------
Operating profit 113,368 124,697
------------ ------------
Finance income 12 7 10
Finance expense 12 (6,243) (5,671)
------------ ------------
Profit before tax 107,132 119,036
Income tax 13 (31) (450)
------------ ------------
Profit for the period 107,101 118,586
------------ ------------
Earnings per share
Basic earnings per
share (cent) 15 15.5 17.4
------------ ------------
Diluted earnings per
share (cent) 15 15.4 17.2
------------ ------------
EPRA earnings per
share (cent) 15 2.8 2.2
------------ ------------
Diluted EPRA earnings
per share (cent) 15 2.8 2.2
------------ ------------
The notes on pages 27 to 74 form an integral part of these consolidated financial statements.
Consolidated statement of comprehensive income
For the financial year ended 31 March 2018
Financial
Financial year ended
year ended 31 March
31 March 2018 2017
Notes EUR'000 EUR'000
Profit for the period 107,101 118,586
--------------- ------------
Other comprehensive income,
net of income tax
Items that will not be reclassified subsequently
to profit or loss:
Gain on revaluation of
land and buildings 18 657 186
--------------- ------------
Items that may be reclassified subsequently
to profit or loss:
Net fair value loss on
hedging instruments entered
into for cash flow hedges 24b (112) (105)
--------------- ------------
Total other comprehensive
income 545 81
--------------- ------------
Total comprehensive income
for the financial year
attributable to owners
of the Company 107,646 118,667
--------------- ------------
The notes on pages 27 to 74 form an integral part of these consolidated financial statements.
Consolidated statement of financial position
As at 31 March 2018
31 March 2018 31 March
2017
Notes EUR'000 EUR'000
Assets
Non-current assets
Investment property 17 1,308,717 1,167,387
Property, plant and
equipment 18 5,411 4,801
Other financial assets 21 240 267
Trade and other receivables 22 7,787 8,536
-------------- ----------
Total non-current
assets 1,322,155 1,180,991
-------------- ----------
Current assets
Trade and other receivables 22 7,239 10,108
Cash and cash equivalents 20 22,521 18,148
-------------- ----------
29,760 28,256
Non-current assets
classified as held
for sale 19 534 385
-------------- ----------
Total current assets 30,294 28,641
-------------- ----------
Total assets 1,352,449 1,209,632
-------------- ----------
Equity and liabilities
Capital and reserves
Issued capital and
share premium 23 686,696 678,110
Other reserves 24 9,620 9,759
Retained earnings 25 415,414 325,983
-------------- ----------
Total equity 1,111,730 1,013,852
-------------- ----------
Non-current liabilities
Financial liabilities 26 219,218 171,138
-------------- ----------
Total non-current
liabilities 219,218 171,138
-------------- ----------
Current liabilities
Trade and other payables 27 21,501 24,642
-------------- ----------
Total current liabilities 21,501 24,642
-------------- ----------
Total equity and liabilities 1,352,449 1,209,632
-------------- ----------
IFRS NAV per share
(cents) 16 160.6 147.9
-------------- ----------
EPRA NAV per share
(cents) 16 159.1 146.3
-------------- ----------
Diluted IFRS NAV per
share (cents) 16 159.1 146.3
-------------- ----------
The notes on pages 27 to 74 form an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
For the financial year ended 31 March 2018
Financial year ended
31 March 2018
Share Share Retained Other
Notes Capital Premium earnings reserves Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at
start of financial
year 68,545 609,565 325,983 9,759 1,013,852
Total comprehensive
income for
the financial
year
Profit for
the financial
year - - 107,101 - 107,101
Total other
comprehensive
income - - - 545 545
--------- --------- ---------- ---------- ----------
68,545 609,565 433,084 10,304 1,121,498
Transactions with owners of
the Company, recognised directly
in equity
Dividends 14 - - (17,656) - (17,656)
Issue of Ordinary
Shares in settlement
of share-based
payments 23 690 7,896 - (8,586) -
Share issue
costs 23 - - (14) - (14)
Share-based
payments expense 11 - 7,902 7,902
--------- --------- ---------- ---------- ----------
Balance at
end of financial
year 69,235 617,461 415,414 9,620 1,111,730
--------- --------- ---------- ---------- ----------
Financial year ended
31 March 2017
Share Share Retained Other
Notes Capital Premium earnings reserves Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Balance at
start of financial
year 68,125 604,273 218,040 6,136 896,574
Total comprehensive
income for
the financial
year
Profit for
the financial
year - - 118,586 - 118,586
Total other
comprehensive
income - - - 81 81
--------- --------- ---------- ---------- ----------
68,125 604,273 336,626 6,217 1,015,241
Transactions with owners of
the Company, recognised directly
in equity
Dividends - - (10,624) - (10,624)
Issue of Ordinary
Shares in settlement
of share-based
payments 23 420 5,292 - (5,712) -
Share issue
costs - - (19) - (19)
Share-based
payments expense - - - 9,254 9,254
--------- --------- ---------- ---------- ----------
Balance at
end of financial
year 68,545 609,565 325,983 9,759 1,013,852
--------- --------- ---------- ---------- ----------
The notes on pages 27 to 74 form an integral part of these consolidated financial statements.
Consolidated statement of cashflows
For the financial year ended 31 March 2018
Notes Financial Financial
year ended year ended
31 March 31 March
2018 2017
Cash flows from operating
activities EUR'000 EUR'000
Profit for the financial
period 107,101 118,586
Gain on sales of investment
properties 7 (6,425) -
Other gains and losses - 380
Adjusted for non-cash
movements: 28 (62,480) (83,889)
-------------------------- -------------
Operating cash flow before
movements in working
capital 38,196 35,077
(Increase)/decrease in
trade and other receivables (989) 7,224
Increase/(decrease) in
trade and other payables 1,830 (1,805)
-------------------------- -------------
Net cashflow from operating
activities 39,037 40,496
-------------------------- -------------
Cash flows from investing
activities
Cash paid for investment
property 28 (93,787) (137,200)
Cash received from sales
of investment properties 7 35,815 -
Cash received in relation
to other non-current
assets held for sale - 9,534
Purchase of fixed assets 18 (238) (225)
Income tax received/(paid) (4) (367)
Finance income 7 10
Finance expense (5,378) (4,521)
-------------------------- -------------
Net cashflow absorbed
by investing activities (63,585) (132,769)
-------------------------- -------------
Cashflow from financing
activities
Dividends paid 25 (17,656) (10,624)
Borrowings drawn 26 86,454 97,877
Borrowings repaid 26 (39,674) -
Derivatives premium paid (189) -
Share issue costs (14) (19)
-------------------------- -------------
Net cash inflow from
financing activities 28,921 87,234
-------------------------- -------------
Net increase/(decrease)
in cash and cash equivalents 4,373 (5,039)
-------------------------- -------------
Cash and cash equivalents
start of financial period 18,148 23,187
Increase/ (decrease)
in cash and cash equivalents 4,373 (5,039)
-------------------------- -------------
Net cash and cash equivalents
at end of financial period 22,521 18,148
-------------------------- -------------
The notes on pages 27 to 74 form an integral part of these consolidated financial statements.
Notes to the financial statements for the year ended 31 March 2018
Section 1 - General
This section contains the significant accounting policies and other information that apply to the Group's financial statements as a whole. Those policies applying to individual areas such as investment properties are described within the relevant note to the consolidated financial statements. This section also includes a summary of the new European Union endorsed accounting standards, amendments and interpretations that have not yet been adopted and their expected impact on the reported results of the Group.
1. General Information
Hibernia REIT plc, the "Company", registered number 531267, together with its subsidiaries and associated undertakings (the "Group"), is engaged in property investment and development (primarily office) in the Dublin market with a view to maximising its shareholders' returns.
The Company is a public limited company and is incorporated and domiciled in Ireland. The address of the Company's registered office is South Dock House, Hanover Quay, Dublin, D02 XW94, Ireland.
The Ordinary Shares of the Company are listed on the primary listing segment of the Official List of Euronext Dublin (formerly the Irish Stock Exchange) (the "Irish Official List") and the premium listing segment of the Official List of the UK Listing Authority (the "UK Official List" and, together with the Irish Official List, the "Official Lists") and are traded on the regulated markets for listed securities of Euronext Dublin and the London Stock Exchange plc (the "London Stock Exchange").
2. Basis of preparation a. Statement of compliance and basis of preparation
These consolidated financial statements of Hibernia REIT plc are non-statutory consolidated financial statements. The Auditors have not completed their audit but the Directors expect that there will be no changes to the financial information between these non-statutory consolidated financial statements and the statutory financial statements that will be contained in the Annual Report. The Annual report of the Group will be issued at the end of June 2018. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings and derivative financial instruments that are measured at fair value at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
The Group has not early adopted any forthcoming IFRS standards. Note 3 sets out details of such upcoming standards.
b. Functional and presentation currency
These consolidated financial statements are presented in Euro, which is the Company's functional currency and the Group's presentation currency.
c. Basis of consolidation
The financial statements incorporate the consolidated financial statements of the Company and entities controlled by the Company (its subsidiaries). The results of subsidiaries and joint arrangements acquired or disposed of during the financial year are included from the effective date of acquisition or to the effective date of disposal. The accounting policies of all consolidated entities are consistent with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cashflows relating to transactions between members of the Group are eliminated in full on consolidation.
d. Assessment of going concern
The consolidated financial statements have been prepared on a going concern basis. The Directors have performed an assessment of going concern for a minimum period of 12 months from the date of signing of this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 31 March 2018 of EUR23m (31 March 2017: EUR18m), is generating positive operating cashflows and, as discussed in note 26, has in place a debt facility with a period to maturity of 2.6 years and an undrawn balance of EUR179m at 31 March 2018 (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 consolidated financial statements is determined on such a basis, except for share-based transactions that are within the scope of IFRS 2 (see note 11 for more details), leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly.
- Level 3 inputs are unobservable inputs for the asset or liability.
Valuation basis of investment properties
All investment properties are valued in accordance with their current use, which is also the highest and best use except for:
- Harcourt Square where, in accordance with IFRS 13:27, the valuation takes into account its potential as a redevelopment asset which reflects the asset in its highest and best use. It is the Directors' intention to pursue the redevelopment of this property when the existing lease has expired.
- 1-6 Sir John Rogerson's Quay, a development property which is nearing completion, has been valued on an investment basis, using market rental values capitalised with a market capitalisation rate, from which remaining capital expenditure has been deducted.
- Gateway, which is currently partly rented on short-term leases, has been valued on a price per acre basis as early stage plans are in place to redevelop this property in the future and this approach reflects the highest and best use of this property.
Block 3 Wyckham Point and Hanover Mills: Both properties are held for long-term property rental and were developed on this basis. VAT was payable on the acquisition (in the case of Block 3 Wyckham Point only) and on the construction costs for both schemes which has been treated as irrecoverable and recognised as part of the capital costs of both projects. If either property is sold within five years of completion, i.e. before mid-2020 (in the case of Block 3 Wyckham Point), the Group would be obliged to charge VAT on the sale but would be entitled to a recovery of the VAT incurred on the construction and acquisition costs on an apportioned basis according to the VAT life of the building. As neither property is intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the Valuer's valuation of either asset was deemed necessary.
Share-based payments
The Group has a number of share-based payment arrangements in place. The determination of the grant date in particular can be complex in nature and requires significant judgement in the interpretation and application of IFRS 2 to these arrangements. The determination of grant date for the performance-related payments element of share-based payments (note 11) was given particular attention by the Audit Committee. Although the grant date of the payments at note 11a and 11b (those arising from internalisation) has been amended from 31 March each financial year to the date of original agreement of the conditions of the payment, the Directors have determined that there is no impact on the accounting for this payment as it is dependent on future performance conditions which include both service and other non-market performance conditions and can only therefore be measured during the period in which it is earned, i.e. during each financial year. This is considered a significant judgement due to the quantum of performance-related payments shown in note 11 each year. The calculation of the absolute element of the performance fee requires some judgement around adjustments to EPRA NAV and while not material in nature, due to the related party nature of the performance-related payments, these are reviewed by the Audit Committee.
f. Analysis of sources of estimation uncertainty
Valuation of investment properties
The Group's investment properties are held at fair value and were valued at 31 March 2018 by the external valuer, Cushman and Wakefield ("C&W"), a firm employing qualified valuers in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). Further information on the valuations and the sensitivities is given in note 17. The Group's investment properties at 31 March 2017 were valued by CBRE Unlimited, the Group's previous valuers. C&W were appointed by Hibernia in September 2017 following a tender process after a rotation of the Group's valuers was considered and approved by the Audit Committee.
The Board conducts a detailed review of each property valuation to ensure that appropriate assumptions have been applied. Property valuations are complex and involve data which is not publicly available and a degree of judgement. The valuation is based upon the key assumptions of estimated rental values and market-based yields. The approach to developments and material refurbishments is on a residual basis and factors, such as the assumed timescale, the assumed future development cost and an appropriate finance and/or discount rate, are used to determine the property value together with market evidence and recent comparable properties where appropriate. In determining fair value, the valuers refer to market evidence and recent transaction prices for similar properties.
The Directors are satisfied that the valuation of the Group's properties is appropriate for inclusion in the financial statements. The fair value of the Group's properties is based on the valuation provided by C&W. This valuation is based on future cashflows from rental income both for the current lease period and future estimated rental values.
In accordance with the Group's policy on lease incentives, the valuation provided by C&W is adjusted by the fair value of the rental income accruals ensuing from the recognition of these incentives. The total reduction in the external valuer's investment property valuation in respect of these adjustments was EUR6.8m (31 March 2017: EUR4.1m).
There were no other significant judgements or key estimates that might have a material impact on the consolidated financial statements at 31 March 2018.
3. Application of new and revised International Financial Reporting Standards ("IFRS")
Impacts expected from relevant new or amended standards
The following standards and amendments will be relevant to the Group but were not effective at the financial year end 31 March 2018 and have not been applied in preparing these consolidated financial statements. The Group's current view of the impact of these accounting changes is outlined below:
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Measurement and Recognition and is effective for annual periods beginning on or after 1 January 2018.
The Group's financial instruments consist of its borrowings and a small number of hedging instruments and loans. There are also some minor amounts in trade receivables and payables which will also be classified as financial instruments. These are analysed further in note 29. We have carried out an assessment of the impacts and implemented these changes from 1 April 2018. While there are some minor amendments to the treatment of financial instruments due to the implementation of IFRS 9, there is no material impact and retained earnings are not expected to be materially impacted based on unaudited calculations.
IFRS 15 Revenue from Contracts with Customers is effective for periods starting on or after 1 January 2018 and specifies how and when an entity recognises revenue from a contract with a customer.
This will be effective for the financial year ended 31 March 2019. The Group has reviewed its revenue streams to consider the impact of IFRS 15 on the financial statements. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied. The Group's main source of revenue is from the leasing of properties and revenue is recognised in accordance with IAS 17: Leases and SIC 15: Operating Leases-Incentives. Rental and other income is recognised over the period of the contract in accordance with the principles in IAS 17. IFRS 15 will apply to service charge income, performance fees and miscellaneous minor contracts. This is effective for the financial year commencing 1 April 2018 and therefore implementation has commenced. The impact of this standard on the recognition of revenue is minor. The service charge income stream is accounted for as a single performance obligation satisfied over time by measuring its progress towards complete satisfaction of that performance obligation. Management fees relating to the provision of services to tenants are recognised as these services are provided. This is in line with the prior recognition approach.
IFRS 16 Leases is applicable for annual periods beginning on or after 1 January 2019.
This standard will apply to the operating leases applicable to the Group's Investment property but is not expected to materially change the Group's accounting in relation to these items as lessor accounting arrangements remain largely unchanged from IAS 17. The Group has some immaterial lease arrangements for minor office assets and recognising these in accordance with IFRS 16 will have no material impact on its financial statements.
Section 2 - Performance
This section includes notes relating to the performance of the Group for the year, including segmental reporting, earnings per share and net assets per share as well as specific elements of the consolidated statement of income.
4. Operating segments A. Basis for segmentation
The Group is organised into six business segments, against which the Group reports its segmental information. These segments mainly represent the different investment property classes. The Group has divided its business in this manner as the various asset segments differ in their character and returns profiles depending on market conditions and reflect the strategic objectives that the Group has targeted. The following table describes each segment:
Reportable segment Description
------------------- ----------------------------------------
Office Assets Office assets comprise central
Dublin completed office buildings,
all of which are generating rental
income. Those assets which are
multi-tenanted or multi-let are
mainly managed by the Group. Income
is therefore rental income and
service charge income, including
management fees, while expenses
are service charge expenses and
other property expenses. Where
only certain floors of a building
are under-going refurbishment
the asset usually remains in this
category, as was the case in Two
Dockland Central.
------------------- ----------------------------------------
Office Development Office development assets are
Assets not currently revenue generating
and are the properties that the
Group has currently under development
in line with its strategic objectives.
Development profits, recognised
in line with completion of the
projects, enhance Net Asset Value
("NAV") and Total Portfolio Return
("TPR"). Once completed these
assets are transferred to the
Office Assets segment at fair
value.
------------------- ----------------------------------------
Residential Assets This segment contains the Group's
income generating multi-tenanted
residential assets.
------------------- ----------------------------------------
Industrial Assets This segment contains industrial
units with adjacent agricultural
land which generates some rental
income.
------------------- ----------------------------------------
Other Assets This segment contains other assets
not part of the previous four
strategic segments. It originally
represented the "non-core" assets,
i.e. those assets identified for
resale from loan portfolio purchases.
Currently this segment contains
assets held for sale.
------------------- ----------------------------------------
Central Assets Central Assets and Costs includes
and Costs the Group head office assets and
expenses.
------------------- ----------------------------------------
The Board reviews the internal management reports, including budgets, at least quarterly at its scheduled meetings. There is some interaction between reportable segments, for example completed development properties transferred to income-generating segments, for example 1WML, in this financial year. These transfers are made at fair value on an arm's length basis using values determined by the Group's independent Valuers.
B. Information about reportable segments
The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses, which comprises revenue (rental and service charge income and other gains and losses such as development management fees), property outgoings, revaluation of investment properties and other gains and losses. Total income after revaluation gains and losses includes rental income which is used as the basis to report key measures such as EPRA Net Initial Yield ("NIY") and EPRA "topped-up" NIY. These measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiration of rent-free period or other lease incentives, respectively.
An overview of the reportable segments is set out below:
Group consolidated segment analysis
For the financial year ended 31 March 2018
Office 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
Revenue 47,028 - 6,475 665 - - 54,168
---------- ------------- ------------ ----------- -------- --------- --------------
Net rental income 41,935 - 6,475 665 - - 49,075
Property outgoings (2,019) - (1,257) (16) (60) - (3,352)
---------- ------------- ------------ ----------- -------- --------- --------------
Total property
income 39,916 - 5,218 649 (60) - 45,723
Gains and losses
on investment
properties 34,311 38,405 16,781 (1,695) - - 87,802
Other gains and
(losses) - - - - - (41) (41)
---------- ------------- ------------ ----------- -------- --------- --------------
Total income 74,227 38,405 21,999 (1,046) (60) (41) 133,484
---------- ------------- ------------ ----------- -------- --------- --------------
Performance-related
payments - - - - - (6,599) (6,599)
Administration
expenses - - - - - (13,232) (13,232)
Depreciation - - - - - (285) (285)
---------- ------------- ------------ ----------- -------- --------- --------------
Total operating
expenses - - - - - (20,116) (20,116)
---------- ------------- ------------ ----------- -------- --------- --------------
Operating profit/(loss) 74,227 38,405 21,999 (1,046) (60) (20,157) 113,368
Finance income - - - - - 7 7
Finance expense (2,838) - - - (103) (3,302) (6,243)
---------- ------------- ------------ ----------- -------- --------- --------------
Profit before
tax 71,389 38,405 21,999 (1,046) (163) (23,452) 107,132
Income tax - - - - - (31) (31)
Profit for the
financial year 71,389 38,405 21,999 (1,046) (163) (23,483) 107,101
========== ============= ============ =========== ======== ========= ==============
Total segment
assets 1,034,046 134,500 139,025 17,800 686 26,392 1,352,449
========== ============= ============ =========== ======== ========= ==============
Investment properties 1,017,937 134,500 138,480 17,800 - - 1,308,717
========== ============= ============ =========== ======== ========= ==============
Group consolidated segment analysis
For the financial year ended 31 March 2017
Office 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
Revenue 36,403 2,930 6,434 562 43 - 46,372
-------------------- ----------------------- -------------------- -------------------- ----------------- ---------------------- -------------
Net rental income 35,490 33 6,434 562 - - 42,519
Property outgoings (1,243) (100) (1,194) (83) (218) - (2,838)
Total property
income 34,247 (67) 5,240 479 (218) - 39,681
Revaluation of
investment
properties 37,925 61,941 2,902 757 - - 103,525
Other gains and
losses - 2,805 - - 43 (372) 2,476
Total Income 72,172 64,679 8,142 1,236 (175) (372) 145,682
-------------------- ----------------------- -------------------- -------------------- ----------------- ---------------------- -------------
Performance-related
payments - (2,308) - - - (5,907) (8,215)
Administration
expenses - - - - - (207) (207)
Depreciation - - - - - (12,563) (12,563)
Total operating
expenses - (2,308) - - - (18,677) (20,985)
-------------------- ----------------------- -------------------- -------------------- ----------------- ---------------------- -------------
Operating
profit/(loss) 72,172 62,371 8,142 1,236 (175) (19,049) 124,697
Finance income - - - - - 10 10
Finance expense (2,145) (167) - - - (3,359) (5,671)
-------------------- ----------------------- -------------------- -------------------- ----------------- ---------------------- -------------
Profit before
tax 70,027 62,204 8,142 1,236 (175) (22,398) 119,036
Income tax - (342) - - (28) (80) (450)
-------------------- ----------------------- -------------------- -------------------- ----------------- ---------------------- -------------
Profit for the
financial year 70,027 61,862 8,142 1,236 (203) (22,478) 118,586
==================== ======================= ==================== ==================== ================= ====================== =============
Total segment
assets 879,532 168,215 117,332 13,168 790 30,595 1,209,632
==================== ======================= ==================== ==================== ================= ====================== =============
Investment Properties 869,748 168,042 116,429 13,168 - - 1,167,387
==================== ======================= ==================== ==================== ================= ====================== =============
C. Geographic information
All of the Group's assets, revenue, and costs are based in Ireland, mainly in central Dublin.
D. Major customers
Included in gross rental income are rents of EUR11.1m (31 March 2017: EUR 11.7m) which arose from the Group's two largest tenants, both of which contributed more than 10% of the rental income. No other single tenant contributed more than 10% of the Group's revenue in 2018 or 2017.
5. Total revenue
Accounting policy
Revenue comprises rental income and surrender premia, service charge income and fees from other activities associated with the Group's property business.
Revenue is recognised in the consolidated income statement when it meets the following criteria:
- it is probable that any future economic benefit associated with the item of revenue will flow to the Group; and
- the amount of revenue can be measured with reliability.
Rental income, including fixed rental uplifts, arises on the Group's investment properties and is recognised in the consolidated income statement on a straight-line basis over the term of the lease. All incentives given to tenants under lease arrangements are recognised as an integral part of the net consideration agreed for the use of the leased asset and therefore recognised on the same straight-line basis over the lease term. Contingent rents, being lease payments that are not fixed at the inception of a lease, such as turnover rents, are recorded as income in the period in which they are earned.
Service charge income and other sums receivable from tenants are recognised as revenue in the period in which the related expenditure is recognised.
Financial year Financial year
ended ended
31 March 2018 31 March 2017
EUR'000 EUR'000
Gross rental income 46,306 41,215
Rental incentives 2,769 1,304
--------------- ---------------
Rental income 49,075 42,519
Service charge income 5,019 1,048
Windmill promote
fee - 2,511
Other income 74 294
--------------- ---------------
Total revenue 54,168 46,372
--------------- ---------------
6. Net property expenses
Accounting policy
Net property expenses comprise service charges and other costs directly recoverable from tenants and non-recoverable costs directly attributable to investment properties. Service charge income relates to contributions from tenants of managed buildings for the property expenses of the occupied buildings. Service charge expense includes building management staff costs and all other costs of managing the buildings. Building management fees are accounted for through the service charge income line along with the amounts invoiced to tenants. Other property expenses consist mainly of residential property costs, vacancy costs and other costs of commercial properties.
Financial year Financial year
ended ended
31 March 2018 31 March 2017
EUR'000 EUR'000
Service charge income (5,019) (1,048)
Service charge expense 5,224 1,205
Other property expenses 3,147 2,681
--------------- ---------------
3,352 2,838
--------------- ---------------
Included in other property expenses is an amount of EUR1.2m (31 March 2017: EUR0.9m) relating to void costs, i.e. costs relating to assets which were not income-generating during the financial year.
7. Gains and losses on investment properties
Financial Financial
year ended year ended
31 March 31 March
2018 2017
Note EUR'000 EUR'000
Revaluation of investment
properties 17 81,377 103,525
Gain on sale of investment 6,425 -
properties
------------ ------------
87,802 103,525
------------ ------------
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Sale price of investment 35,815 -
properties
Carrying value at sales (29,390) -
date
------------ ------------
6,425 -
------------ ------------
8. Other gains and losses
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Gains on sales of non-current
assets classified as held
for sale - 43
Windmill promote fee - 2,511
Other (losses) (41) (78)
------------ ------------
Other (losses)/gains (41) 2,476
------------ ------------
9. Administration expenses
Accounting policy
Administration expenses are recognised when incurred in the consolidated income statement.
Operating profit for the financial year has been stated after charging:
Financial Financial
year ended year ended
31 March 2018 31 March
2017
Note EUR'000 EUR'000
Non-executive Directors'
fees 286 300
Professional Valuers'
fees 281 418
Prepaid remuneration
expense 4,444 4,444
Depository fees 278 296
Depreciation 18 285 207
"Top-up" internalisation
expenses for financial year
11 1,743 1,101
Staff costs 10 3,405 2,760
Other administration
expenses 2,795 3,244
--------------------------------- ------------
Total administration
expenses 13,517 12,770
--------------------------------- ------------
All fees paid to non-executive Directors are for services as Directors to the Company. Non-executive Directors receive no other benefits other than Frank Kenny who also received EUR181k in consulting fees during the year and 1.3m shares or EUR1.8m as a Vendor (note 34).
Prepaid remuneration expense relates to the recognition of payments to Vendors of the Investment Manager that are contingent on the continued provision of services to the Group over the period during which the Group benefits from the service. These payments were made in November 2015 as part of the internalisation of the Investment Manager and were made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. These clawback arrangements over one-third of this payment are removed on each anniversary of the acquisition date until November 2018. EUR2.7m (31 March 2017: EUR7.1m) is included in trade and other receivables as prepaid remuneration (note 22).
"Top-up" internalisation expenses relate to additional management fees that would have been due under the IMA due to increases in NAV in the period since internalisation. These are payable in shares of the Company (note 11).
Professional valuers' fees are paid to Sherry FitzGerald (Commercial) Limited, trading as Cushman & Wakefield (formerly DTZ Sherry FitzGerald) ("C&W"), in return for their services in providing independent valuations of the Group's investment properties on an at least twice-yearly basis. Professional valuers' fees are charged on a fixed rate per property valuation. The fees for the period from September 2017 to 31 March 2018 were agreed in September 2017 through a letter of engagement. The fees payable to C&W are less than 5% of their fee income for the financial year 31 December 2016.
Auditors' remuneration (excluding VAT)
Financial year Financial year
ended 31 March ended 31 March
2018 2017
EUR'000 EUR'000
Company
Audit of entity financial statements 71 70
Other assurance services - -
Tax advisory services - -
Other non-audit services - -
Company total 71 70
--------------- ---------------
Group
Audit of the Group financial statements 36 35
Audit of subsidiaries financial statements 28 30
Other assurance services(1) 16 23
Tax advisory services - -
Other non-audit services - -
Group total 80 88
--------------- ---------------
Total 151 158
--------------- ---------------
(1) Other assurance
services include the
review of the Interim
Report
10. Employment
The average monthly number of persons (including executive Directors) directly employed during the financial year in the Group was 28 (31 March 2017: 18). The single largest area of growth since last year was building management services, as the number of buildings under Hibernia's direct management increased.
Total employees at financial year end:
Group
31 March 2018 31 March 2017
Number Number
At financial year
end:
Building management
services
Head Office staff 6 4
On-site staff 5 3
-------------- --------------
11 7
Administration 21 16
-------------- --------------
Total employees 32 23
-------------- --------------
Company
Financial Financial
year ended year ended
31 March 31 March
2018 2017
Number Number
At financial year
end:
Administration 21 16
------------ ------------
No amount of salaries and other benefits is capitalised into investment properties. Staff costs are allocated to the following expense headings:
Group
Financial Financial
year ended year ended
31 March 2018 31 March
2017
The staff costs for
the above employees
were:
EUR'000 EUR'000
Wage and salaries 4,023 2,974
Social insurance costs 415 251
Employee share-based
payment expense 570 443
Pension costs - defined
contribution plan 235 195
--------------- ------------
Total 5,243 3,863
--------------- ------------
Financial Financial
year ended year ended
31 March 2018 31 March
2017
Staff costs are allocated
to the following expense
headings: EUR'000 EUR'000
Administration expenses 3,405 2,760
Net property expenses(1) 848 217
Performance-related
payments 990 886
--------------- ------------
Total 5,243 3,863
--------------- ------------
(1) Most of the EUR848k is recovered directly from tenants via the service charge arrangements within Hibernia managed buildings.
Company
Financial Financial
year ended year ended
31 March 31 March
2018 2017
The staff costs for the
above employees were:
EUR'000 EUR'000
Wage and salaries 3,261 2,785
Social insurance costs 350 231
Employee share-based payment
expense 570 443
Pension costs - defined
contribution plan 214 187
------------ ------------
Total 4,395 3,646
------------ ------------
Financial Financial
year ended year ended
31 March 31 March
2018 2017
Staff costs are allocated
to the following expense
headings: EUR'000 EUR'000
Administration expenses 3,405 2,760
Performance-related payments 990 886
------------ ------------
Total 4,395 3,646
------------ ------------
11. Share-based payments
Accounting policy
The Group has a number of share-based arrangements in place. These share-based payments are transactions in which the Group receives services in exchange for its equity instruments or by incurring liabilities for cash amounts based on the price of the Group's shares. Share-based payments settled in the Group's shares are measured at the grant date except where they are subject to non-market performance conditions which include a service condition in which case they are measured over the relevant service period.
Share-based payments that are granted to employees at the end of each financial year, and that have a vesting period subject to service conditions, are recognised at fair value at the grant date and amortised through the consolidated income statement over the vesting period. Share-based payments that are cash-settled are re-measured at fair value at each accounting date. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payment reserve.
The following share-based payment arrangements were in place during the financial year.
a. Performance-related payments
As part of the arrangements for the internalisation of the Investment Manager in 2015, it was agreed that any future performance fees and other payments due under the terms of the Investment Management Agreement ("IMA"), would be calculated as under the IMA for each financial year and settled mainly in shares of the Company until the expiry of the agreement in November 2018. It was agreed that up to 15% of any performance fees would be set aside for the payment of cash bonuses and deferred share-based payments (see part b below) to employees. This was agreed within the Share Purchase Agreement ("SPA") which was signed on 23 September 2015 and approved by shareholders at an EGM on 27 October 2015. As all parties had a shared understanding of the terms and conditions of the arrangement and approval was obtained on 27 October 2015, the grant date is determined to be this date for payments made under this arrangement.
At the grant date, the Company has granted possible future share awards based on future performance conditions which include both service and other non-market performance conditions. The service period is defined in the contract as each financial year until the expiry of the agreement on 26 November 2018. Expenses are therefore recognised over each financial year as services are provided.
Performance-related payments comprise absolute and relative performance fees as described under the IMA as well as "top-up" internalisation expenses that relate to management fees that would have been due under the IMA as a result of increases in NAV in the period since internalisation.
At the start of each financial year, as part of the budgeting process, the Board estimates the level of performance-related fees that are expected to be earned over the period. The number of shares expected to issue in payment of these fees is estimated by reference to the share price at each accounting date. At the year end, the calculation of the monetary value of the performance-related payments is determined using the EPRA Net Asset Value of the Group at the financial year end and the Total Property Return as determined by IPD and using calculation protocols as were set out in the Investment Management Agreement and as subsequently modified by shareholder agreement at an Extraordinary General Meeting ("EGM") on 26 October 2016. The number of shares which will be issued to satisfy these payments is determined using the average closing price of Hibernia shares on the Irish Stock Exchange for the 20 business days preceding the date of the financial period end.
The Directors have calculated the amount of fees that are payable under this arrangement for the financial year ended 31 March 2018 in preparing these consolidated financial statements and these are shown in the table below split between performance-related payments, "top-up" internalisation expenses and employee share-based payment reserves (see also part b). In addition, amounts fell due in December 2016 in relation to the achievement of return targets on the termination of the Windmill Lane joint arrangement and these were provided in the financial year ended 31 March 2017.
Summary of performance-related payments
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Performance-related payments 6,599 5,907
Windmill promote and development
management fees - 2,308
------------ ------------
Total performance-related
payments for the financial
year 6,599 8,215
"Top-up" internalisation
expenses (note 9) 1,743 1,101
------------ ------------
Total 8,342 9,316
------------ ------------
Of which are:
Payable to Vendors (share-based,
see below) 7,352 8,430
Payable to employees (approximately
50% share-based - see part
b below) 990 886
------------ ------------
Total 8,342 9,316
------------ ------------
Shares issued relating to performance-related payments to Vendors are subject to lock-up provisions meaning they are restricted from being sold upon receipt, with one-third of the shares being "unlocked" on each anniversary of the issue date. All shares are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them.
Share-based performance-related payments during the financial year
EUR0.5m of the above total performance payment of EUR8.3m will be paid in cash bonuses to staff, the balance of EUR7.8m will be payable in shares.
Summary of share-based payments outstanding as at
31 March 2018
Balance
Payment provided outstanding
at start Paid during Provided at end
of financial financial during financial of financial
year year year(1) year
'000 '000 '000 '000
EUR'000 Shares EUR'000 Shares EUR'000 Shares EUR'000 Shares
a. Performance-related
payments 8,586 6,895 (8,586) (6,895) 7,332 5,079 7,332 5,079
b. Employee
long-term
incentive
plan - IMA
portion 881 708 - - 492 336 1,373 1,044
c. Employee
long-term
incentive
plan - interim
arrangements - - - - 78 60 78 60
--------- -------- --------- -------- ---------- -------- --------- --------
Balance at (8,586
period end 9,467 7,603 ) (6,895) 7,902 5,475 8,783 6,183
--------- -------- --------- -------- ---------- -------- --------- --------
(1) The 20-day average share price prior to the financial year end was 1.448
Summary of share-based payments outstanding as at
31 March 2017
Balance
Payment provided outstanding
at start Paid during Provided at end
of financial financial during financial of financial
year year year(1) year
'000 '000 '000 '000
EUR'000 Shares EUR'000 Shares EUR'000 Shares EUR'000 Shares
a. Performance-related
payments 5,469 4,200 (5,469) (4,200) 8,586 6,895 8,586 6,895
b. Employee
long-term
incentive
plan - IMA
portion 456 350 - - 425 358 881 708
c. Employee
long-term
incentive
plan - interim
arrangements - - - - - - - -
--------- -------- --------- -------- ---------- -------- --------- --------
Balance at
period end 5,925 4,550 (5,469) (4,200) 9,011 7,253 9,467 7,603
--------- -------- --------- -------- ---------- -------- --------- --------
(1) The 20-day average share price prior to the financial year end was 1.237
a. Performance-related payments
31 March 2018
Grant date: 27 October 2015
Measurement date: 31 March 2018
Financial year Financial year
ended 31 March ended 31 March
2018 2017
Number Number
Share EUR of shares EUR of shares
price '000 '000 '000 '000
Opening balance at
start of financial
year 1.245 8,586 6,895 5,469 4,200
Payment made during
the financial year (8,586) (6,895) (5,469) (4,200)
Amounts provided during
the financial year 8,322 9,472
Less: payable to employees
(b) (990) (886)
-------- ----------- -------- -----------
Share-based payment
due to vendors 7,332 5,079 8,586 6,895
-------- ----------- -------- -----------
Closing balance at
end of financial year 1.444 7,332 5,079 8,586 6,895
---------------------------- ------------- -------- ----------- -------- -----------
The settlement of performance-related fees for the financial year ended 31 March 2017 was made on 3 July 2017 resulting in the listing of 6,895,231 new Ordinary Shares when the prior days closing price of the Company's shares was EUR1.375.
b. Employee long-term incentive plan - IMA portion
Awards may be granted to employees of the Group under a remuneration plan which includes both cash elements and share-based long-term incentive payments (the "Performance-Related Remuneration Scheme" or "PRR"). Until the expiry of the performance-related payments referenced in part a. above in November 2018, the PRR will be funded principally by deductions of up to 15% from any performance fees included in these performance-related payments. Shares awarded under the PRR, approximately 50% of the total award or up to 7.5% of the performance fee element of the performance-related payments at a. above, are in the form of a contingent award of Company shares which will issue at the time of vesting, which occurs on the third anniversary of the start of the year to which they relate. These shares are a part of the payments outlined at part a. above and the grant and measurement dates are determined on the same basis. The number of shares is calculated based on the average closing price for the 20 business days preceding the end of the period to which the award relates. These shares are recorded at fair value on the measurement date, i.e. the 31 March of the year to which they are earned. The charge recognised in the consolidated income statement for the period ended 31 March 2018 is EUR0.5m (31 March 2017: EUR0.4m). When these shares vest they are assessed for tax purposes at the current market share price. Employee taxes are recognised through payroll.
Shares are forfeited should the person leave the Group prior to the vesting date unless subject to "good leaver" provisions. Any shares forfeited are transferable to the Vendors on the basis that these shares have been deducted from performance fees that would otherwise have been due to the Vendors. Therefore, there is no impact on fair value measurement from any possible departures relating to these shares.
Employee long-term incentive plan - IMA portion
31 March 2018
Grant date: 27 October 2015
Measurement date: 31 March 2018
Financial Financial
year ended year ended
31 March 31 March
2018 2017
Number Number
of shares of
Share EUR '000 EUR shares
price '000 '000 '000
Opening balance at
start of financial
year 1.245 881 708 456 350
Amounts provided during
the year * 990 - 870 -
Of which is payable
in cash (498) - (445)
------ ------------ ------ ---------
Share-based element
this year 492 336 425 358
Closing balance at
end of financial year 1.444 1,373 1,044 881 708
------------------------- -------- ------ ------------ ------ ---------
* These amounts are paid out of the deductions from performance-related payments in a. above. Share-based payments awards amount to approximately 50% of the total, the balance being paid in cash
c. Employee long-term incentive plan - interim arrangements
Employees who fall outside of the arrangements at b. above, i.e. those who provide services that were not part of the IMA arrangements, e.g. new staff including building management and development staff, are also paid bonuses on a similar basis to those paid to the employees qualifying at b. above. Until the expiry of the IMA and the introduction of the new remuneration arrangements, these arrangements are approved by the Board each year. Shares granted to these employees are determined to have a grant date of the date of approval by the Board of these awards. These shares vest two years after the end of the financial year to which they relate. Employees who leave before the vesting date will lose entitlement to these shares. These amounts are amortised over the vesting period by reference to the fair value of the shares granted and after appropriate consideration of the potential impact of employee departures. Due to the low level of turnover in the Group to date, the fact that the relevant employees have mainly joined within the last year, and the likely immaterial amounts involved, the Directors have made no amendment to the amount provided for expected forfeiture of shares due to departures. When these shares vest they are assessed for tax purposes at the current market share price.
Employee long-term incentive plan - Interim arrangements
31 March 2018
Grant date: 24 May 2017
Financial Financial
year ended year ended
31 March 31 March
2018 2017
Number `Number
Share EUR of shares EUR of shares
price '000 '000 '000 '000
Opening balance at
start of financial
year - - - - -
Payment made during
the financial year - - - -
Amounts provided during
the financial year 78 60 -
------ ----------- ------ -----------
Closing balance at
end of financial year 1.444 78 60 - -
------------------------- ------------- ------ ----------- ------ -----------
Total shares awarded at the grant date 24 March 2017 were 0.1m. These vest on 31 March 2019.
A further 0.4m shares are expected to be granted and, if granted, will vest on 31 March 2020.
12. Finance income and expense
Accounting policy
Finance expenses directly attributable to the construction or production of investment properties which take a considerable length of time to prepare for rental to tenants, are added to the costs of those properties until such time as the properties are substantially ready for use. All other finance expenses and income are recognised in the profit and loss account as they occur using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the interest income, interest expense and fees paid and received over the relevant period.
The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees and arrangement fees.
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Interest income on cash and
cash equivalents 7 10
Effective interest expense
on borrowings (6,243) (5,671)
(6,236) (5,661)
----------- -----------
Interest costs capitalised in the financial year were EUR2.0m (31 March 2017: EUR0.9m) in relation to the Group's development and refurbishment projects. The capitalisation rate used is the effective interest rate on the cost of borrowing applied to the portion of investment that is financed from borrowings.
13. Income tax expense
Accounting policy
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except insofar as it applies to business combinations or to items recognised in other comprehensive income.
Current tax: current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Hibernia REIT plc has elected for Real Estate Investment Trust ("REIT") status under section 705E Tax Consolidation Act 1997. As a result, the Group does not pay Irish corporation tax on the profits and gains from its qualifying rental business in Ireland provided it meets certain conditions. With certain exceptions, corporation tax is still payable in the normal way in respect of income and gains from a Group's Residual Business that is, its non-property rental business.
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Income tax on residual income 21 342
Tax on the disposal of non-core
assets - 28
Under provision in respect
of prior periods 10 80
----------- -----------
Income tax expense for the
financial year 31 450
----------- -----------
Reconciliation of the income tax expense for the financial year
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Profit before tax 107,132 119,036
Tax charge on profit
at standard rate of
12.5% 13,392 14,880
Non-taxable revaluation
surplus (10,172) (13,016)
REIT tax-exempt profits (3,220) (1,511)
Other (additional
tax rate on residual
income) 21 17
Under provision in
respect of prior periods 10 80
------------ ------------
Income tax expense for
the financial year 31 450
------------ ------------
The Directors confirm that the Group has remained in full compliance with the Irish REIT rules and regulations up to and including the date of this report.
14. Dividends
Accounting policy
Interim dividends are recognised as a liability of the Company when the Board of Directors resolves to pay the dividend and the shareholders have been notified in accordance with the Company's Articles of Association. Final dividends of the Company are recognised as a liability when they have been approved by the Company's shareholders at the AGM.
Financial
year ended Financial year
31 March ended 31 March
2018 2017
EUR'000 EUR'000
--------------------------- ------------------ ---------------------------
Interim dividend for the
financial year ended 31
March 2018 of 1.1 cent
per share (31 March 2017:
0.75 cent per share) 7,616 5,141
---------------------------- ------------------ -----------------------------
Proposed final dividend
for the financial year
ended 31 March 2018 of
1.9 cent per share(1)
(31 March 2017: 1.45 cent
per share) 13,254 10,040
---------------------------- ------------------ -----------------------------
(1) An estimated 697.6m shares are entitled to the dividend
The Board has proposed a final dividend of 1.9 cent per share (31 March 2017: 1.45 cent) which is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as a liability in these consolidated financial statements. This dividend is expected to be paid to shareholders on 3 August 2018. All of this proposed final dividend of 1.9 cent per share will be a Property Income Distribution ("PID") in respect of the Group's tax-exempt property rental business (31 March 2017: 1.45 cent). The total dividend, interim paid and final proposed for the financial year ended 31 March 2018 is 3.0 cent per share (31 March 2017: 2.2 cent per share) or EUR20.9m (31 March 2017: EUR15.2m).
Under the REIT regime, the Company is required to distribute a minimum of 85% of the Group's property rental business income. The actual percentages are shown below:
Financial Financial
year ended year ended
31 March 31 March
2018 2017
EUR'000 EUR'000
Profit for the period 107,101 118,586
Less gains and losses
on investment properties (87,802) (103,525)
Add back other losses 41 35
-------------------------------- ---------------------------------
Property income of the
Property Rental Business 19,340 15,096
-------------------------------- ---------------------------------
85% thereof 16,439 12,832
-------------------------------- ---------------------------------
Total dividends 20,870 15,181
-------------------------------- ---------------------------------
% of property income
to be distributed 108% 101%
-------------------------------- ---------------------------------
15. Earnings per share
There are no convertible instruments, options, or warrants on Ordinary Shares in issue as at the financial year ended 31 March 2018. However, the Company has established a reserve of EUR8.8m (31 March 2017: EUR9.5m) which is mainly for the issue of Ordinary Shares relating to the payment of performance-related amounts due under the performance-related payment element of the Share Purchase Agreement relating to the internalisation of the Investment Manager (note 11). It is estimated that approximately 6.2m Ordinary Shares (31 March 2017: 7.6m shares) will be issued in total, 6.2m of which are provided for at 31 March 2018 and a further 0.4m which will be recognised over the next two years. Details on share-based payments are set out in note 11. The dilutive effect of these shares is disclosed below.
The calculations are as follows:
Weighted average number of shares 31 March 31 March
2018 2017
'000 '000
Issued share capital at beginning of
financial year 685,452 681,251
Shares issued during the financial
year 6,895 4,201
--------- ---------
Shares in issue at end at financial
year end 692,347 685,452
--------- ---------
Weighted average number of shares 688,900 683,351
Estimated additional shares due for
issue for long-term incentive plan/
performance fee 6,599 7,603
--------- ---------
Diluted number of shares 695,499 690,954
--------- ---------
The estimated additional shares are calculated as follows:
Financial Financial
year ended year ended
31 March 31 March
2018 2017
'000 '000
Share-based payments due
at financial year end (note
11) 6,183 7,603
Non-IMA awards granted post
year end 416 -
------------ ------------
Number of shares to be issued 6,599 7,603
------------ ------------
Basic and diluted earnings 31 March 31 March
per share (IFRS) 2018 2017
EUR'000 EUR'000
Profit/(loss) for the financial
year attributable to the owners
of the Company 107,101 118,586
'000 '000
Weighted average number of ordinary shares
(basic) 688,900 683,351
Weighted average number of ordinary shares
(diluted) 695,499 690,954
Basic earnings per share (cents) 15.5 17.4
Diluted earnings per share (cents) 15.4 17.2
EPRA earnings per share and Diluted EPRA 31 March 2018 31 March 2017
earnings per share'
EUR '000 EUR '000
Profit for the financial year attributable
to the owners of the Company 107,101 118,586
Exclude:
Gains and losses on investment properties (87,802) (103,525)
Profit or (loss) on disposals of non-core
assets - (43)
Income tax on profit or loss on disposals - (30)
Fair value of derivatives 104 1
EPRA earnings 19,403 14,989
'000 '000
Weighted average number of ordinary shares (basic) 688,900 683,351 Weighted average number of ordinary shares (diluted) 695,499 690,954 EPRA earnings per share (cent) 2.8 2.2 Diluted EPRA earnings per share (cent) 2.8 2.2
(1) EPRA Earnings per share are an alternative performance measure and are calculated in accordance with the EPRA Best Practice Recommendations Guidelines November 2016. Further information is available in the Supplementary information section at the end of this statement.
16. IFRS and EPRA NAV per share
Accounting policy
The IFRS NAV is calculated as the value of the Group's assets less the value of its liabilities based on IFRS measures. EPRA NAV is calculated in accordance with the European Public Real Estate Association ("EPRA") Best Practice Recommendations: November 2016.
The EPRA NAV per share includes investment property, other non-current asset investments and trading properties at fair value. For this purpose, non-current assets classified as held for sale are included at fair value. It excludes the fair value of movement financial instruments and deferred tax and related goodwill.
31 March 2018 31 March 2017
EUR'000 EUR'000
IFRS net assets at end of financial year 1,111,730 1,013,852
Ordinary Shares in issue 692,347 685,452
IFRS NAV per share (cents) 160.6 147.9
Ordinary Shares in issue 692,347 685,452
Estimated additional shares for performance-related payments 6,599 7,603
Diluted number of shares 698,946 693,055
Diluted IFRS NAV per share (cents) 159.1 146.3
31 March 2018 31 March 2017
EUR'000 EUR'000
IFRS net assets at end of financial year 1,111,730 1,013,852
Net mark to market on financial assets 345 117
EPRA NAV 1,112,075 1,013,969
EPRA NAV per share (cents) 159.1 146.3
The Company has established a reserve of EUR8.8m (31 March 2016: EUR9.5m) against the issue of 6.2m Ordinary Shares relating to shares due to issue for payments due to the Vendors of the Investment Manager and employees as detailed in note 11.
Section 3 - Tangible assets
This section contains information on the Group's investment properties and other tangible assets. All investment properties are fully owned by the Group. The Group's investment properties are carried at fair value and its other tangible assets at depreciated cost except for land and buildings which are adjusted to fair value.
17. Investment properties
Investment properties are properties held to earn rental income and/or for capital appreciation (including property under construction for such purposes). Properties are treated as acquired at the point at which the Group assumes the significant risks and rewards of ownership. This occurs when:
(1) it is probable that the future economic benefits that are associated with the investment property will flow to the Group;
(2) there are no material conditions which could affect completion of the acquisition; and (3) the cost of the investment property can be measured reliably.
Investment properties are measured initially at cost, including transaction costs. After initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in the consolidated income statement in the period in which they arise.
Investment properties and properties under development are professionally valued on a twice-yearly basis or as required by qualified external valuers using inputs that are observable either directly or indirectly for the asset in addition to unobservable inputs and are therefore classified at Level 3. The valuation of investment properties is further discussed above under note 2(e) and 2(f).
The valuations of investment properties and investment properties under development are prepared in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). When the Group begins to redevelop an existing investment property, or property acquired as an investment property, for future use as an investment property the property remains an investment property and is accounted for as such. Expenditure on investment properties is capitalised only when it increases the future economic benefits associated with the property. All other expenditure is charged to the consolidated income statement. Interest and other outgoings, less any income, on properties under development are capitalised. Borrowing costs, that is interest and other costs incurred in connection with borrowing funds, are recognised as part of the costs of an investment property where directly attributable to the purchase or construction of that property. Borrowing costs are capitalised in accordance with the policy described in note 12.
In accordance with the Group's policy on revenue recognition (note 5), the value of accrued income in relation to the recognition of lease incentives under operating leases over the term of the lease is adjusted in the fair value assessment of the investment property to which the accrual relates.
Where amounts are received from departing tenants in respect of "dilapidations", i.e. compensation for works that the tenant was expected to carry out at the termination of a lease but the tenant, in agreement with the Group, pays a compensatory sum in lieu of carrying out this work, the Group applies these amounts to the cost of the property. The value of the work to be done is therefore reflected in the fair value assessment of the property when it is assessed at the end of the period.
An investment property is de-recognised on disposal, i.e. when the significant risks and rewards are transferred outside the Group's control, or when the investment property is permanently removed from use and no future economic benefits are anticipated from the disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the period in which the property is de-recognised.
At 31 March 2018
Office Assets Office Development Residential Assets Industrial Assets Total
Assets
Fair value category Level 3 Level 3 Level 3 Level 3 Level 3
Group Group Group Group Group
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Carrying value at 31
March 2017 869,748 168,042 116,429 13,168 1,167,387
Additions:
Property purchases 32,075 - 923 6,160 39,158
Development and
refurbishment
expenditure 12,250 36,953 815 167 50,185
Revaluations included in
income statement 29,875 38,405 14,792 (1,695) 81,377
Disposals:
Sales(1) (26,990) - (2,400) - (29,390)
Transferred between
segments(2) 100,979 (108,900) 7,921 - -
Carrying value at 31
March 2018 1,017,937 134,500 138,480 17,800 1,308,717
(1) The Chancery Building, Hanover Street East and 11 Lime Street were sold during the year, generating EUR6.4m in gains over carrying values.
(2) 2WML (formerly the Hanover Building) was transferred from "Office Assets" to "Office Development Assets" as re-development commenced in the period. 1WML and Hanover Mills Apartments were completed during the period and moved from "Office Development Assets" to "Office Assets" and "Residential Assets", respectively.
At 31 March 2017
Office Assets Office Development Residential Assets Industrial Assets Total
Assets
Fair value category Level 3 Level 3 Level 3 Level 3 Level 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(1) 126,650 (126,650) - - -
Carrying Value at 31
March 2017 869,748 168,042 116,429 13,168 1,167,387
(1) 1 Cumberland Place development which was completed in September 2016.
The valuations used to determine fair value for the investment properties in the consolidated financial statements are determined by C&W, the Group's independent Valuer, and are in accordance with the provisions of IFRS 13. C&W has agreed to the use of their valuations for this purpose. Some of the inputs to the valuations are defined as "unobservable" by IFRS 13. As discussed in note 2(f) to the consolidated financial statements, property valuations are inherently subjective as they are made on the basis of assumptions made by the Valuer. For these reasons, and consistent with EPRA's guidance, the Group has classified the valuations of its property portfolio as Level 3 as defined by IFRS 7. Valuations are completed on the Group's investment property on at least a half-yearly basis and, in accordance with the appropriate sections of the Professional Standards ("PS"), the Valuation Technical and Performance Standards ("VPS") and the Valuation Applications ("VPGA") contained within the RICS Valuation - Global Standards 2017 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards ("IVS"). This takes account of the properties' highest and best use. Where the highest and best use is not the current use, the valuation will account for the costs and likelihood of achieving this use in arriving at a valuation estimate for that property. In the period to 31 March 2018, for most properties the highest and best use is the current use except as discussed in note 2(f). In these instances, the Group may need to achieve vacant possession before re-development or refurbishment may take place and the valuation of the property takes account of any remaining occupancy period on existing leases. The table below summarises the approach for each investment property segment and highlights properties where the approach has been varied.
The method that is applied for fair value measurements categorised within Level 3 of the fair value hierarchy is the yield methodology using market rental values capitalised with a market capitalisation rate or yield or other applicable valuation technique. Using this approach for the Group's investment properties, values of investment properties are arrived at by discounting forecasted net cashflows at market derived capitalisation rates. This approach includes future estimated costs associated with refurbishment or development, together with the impact of rental incentives allowed to tenants. Therefore, for example, development properties are assessed using a residual method in which the completed development property is valued using income and yield assumptions and deductions are made for the estimated costs to completion, including finance costs and developers' profit, to arrive at the current valuation estimate. In effect this values the development as a proportion of the completed property.
In valuing the Group's investment properties, the Directors have applied a reduction of EUR6.8m (31 March 2017: EUR4.1m) to the Valuers' valuations to factor in the impact of the accounting policy on the recognition of rental incentives allowed to tenants. This deduction is a measure of the impact on the property valuation of the difference between cash and accounting approaches to the recognition of rental income.
There were no transfers between fair value levels during the period. Approximately EUR2.0m of financing costs were capitalised in relation to the Group's developments and refurbishments (31 March 2017: EUR0.9m). No other operating expenses were capitalised during the financial year.
The following table illustrates the methods applied to each segment:
Fair value
of the
investment
Description property
of EUR'm at
investment the
property financial Narrative description of
asset class year end the techniques used Changes in the fair value technique during the financial year
Office 1,018 Yield methodology using market rental values capitalised with a No change in valuation technique.
assets market capitalisation rate. At 31 March 2017, surplus lands at Harcourt Square were assessed
Exceptions to this: using the residual method
Harcourt Square is valued on an investment basis until the end (see below method) and the present value of this was added to the
of the lease and on a residual investment value of the
basis thereafter at 31 March 2018. The present value of the existing blocks. The whole property is now valued on a residual
residual land value was added basis when the lease expires.
to the investment value of the existing income.
Office 135 Residual method i.e. "Gross Development Value" less "Total No change in valuation technique.
development Development Cost" less "Profit" However: the following properties changed the method
assets equals "Fair Value": applied during the period:
* Gross Development Value ("GDV"): the fair value of * The office element at 1SJRQ, which is nearing
the completed proposed development (arrived at by completion, has been valued on an investment basis
capitalising the ERV with an appropriate yield). using market rental values capitalised with a market
capitalisation rate, from which remaining capital
expenditure has been deducted.
* Total Development Cost ("TDC"): this includes, but
are not limited to, construction costs, land
acquisition costs, professional fees, levies, * 1WML was completed during the year and transferred to
marketing costs and finance costs. the office segment. Hanover Mills apartments, part of
the 1WML development, were moved to the residential
segment on completion.
* Profit or "Profit on Cost": this is measured as a
percentage of the total development costs (including
the site value). * 2WML (formerly the Hanover Building), where a
redevelopment has commenced, was transferred into
this segment and is valued on a residual basis.
For developments close to completion the yield methodology
is applied.
Residential 138 Yield methodology using market rental values capitalised with a No change in valuation technique apart from Cannon Place which
assets market capitalisation rate. was previously valued on a
break-up basis and is now valued on an investment basis
reflecting the highest and best use.
Industrial 18 Yield methodology using market rental values capitalised with a The technique has changed in relation to the Gateway complex, the
assets market capitalisation rate. Group's only industrial
property. This is now valued on a price per acre basis. Early
stage plans are in place to
redevelop in the future and this approach reflects the highest
and best use of this property.
Reconciliation of the independent Valuer's valuation report amount to the carrying value of investment property in the Consolidated statement of financial position:
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR'000 EUR'000
Valuation per Valuers' certificate 1,320,581 1,175,926
Owner occupied (note 18) (5,029) (4,473)
Rental incentives adjustment(1) (6,835) (4,066)
Investment property balance at financial
year end 1,308,717 1,167,387
1.Rental incentives adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cashflow based approach while incentives given to tenants under lease arrangements are recognised as an integral part of the net consideration agreed for the use of the leased asset and the aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term.
Information about fair value measurements using unobservable inputs (Level 3)
The valuation techniques used in determining the fair value for each of the categories of assets is market value as defined by VPS4 of the Red Book 2017, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, and is in accordance with IFRS 13. Included in the inputs for the valuations above are future development costs where applicable. These development costs are generally determined by tender at the outset of the project and are therefore observable and not subject to material change.
As outlined above, the main inputs in using a market based capitalisation approach are the ERV and equivalent yields. ERVs, apart from in multi-family residential properties as discussed below, are not generally directly observable and therefore classified as Level 3. Yields depend on the Valuers assessment of market capitalisation rates and are therefore Level 3 inputs.
The table below summarises the key unobservable inputs used in the valuation of the Group's investment properties at 31 March 2018. There are interrelationships between these inputs as they are both determined by market conditions and the valuation result in any one period depends on the balance between them. The Group's residential properties are multi-family units and therefore ERVs are based on current market rents observed for units rented within the property. ERV is included in the below table for completeness.
Key unobservable inputs used in the valuation of the Group's investment properties
31 March 2018
Market value Estimated rental value EUR per sq. ft. Equivalent yield %
EUR '000 Low High Low High
Office 1,017,937 EUR20.00psf EUR60.00psf 4.56% 7.17%
Office development 134,500 EUR30.00 psf EUR58.00 psf 4.75% 5.25%
Residential * 138,480 EUR19,800 pa EUR 31,800 pa 5.20% 6.43%
Industrial 17,800 EUR5.5 psf EUR5.5 psf 7.45% 7.45%
* Average ERV based on a two-bedroom apartment
31 March 2017
Market value Estimated rental value EUR per sq. ft. Equivalent yield %
EUR '000 Low High Low High
Office 647,042 EUR23.55 psf EUR55.00 psf 4.87% 6.24%
Office development 155,016 EUR47.00 psf EUR55.00 psf 5.25% 5.50%
Residential * 113,200 EUR18,000 pa EUR 26,400 pa 4.40% 4.60%
Industrial 12,398 EUR3.75 psf EUR5.75 psf 7.36% 7.36%
* Average ERV based on a two-bedroom apartment
The sensitivities below illustrate the impact of movements in key unobservable inputs on the fair value of investment properties. To calculate these impacts only the movement in one unobservable input is changed as if there is no impact on the other. In reality there may be some impact on yields from an ERV shift and vice versa. However, this gives an assessment of the maximum impact of shifts in each variable. If rents in the market are assumed to move 5% from those estimated at 31 March 2018, the Group's investment property portfolio would increase or decrease in value approximately EUR60m (31 March 2017: EUR57m). A 25bp increase in equivalent yields would decrease the value of the portfolio by EUR69m (31 March 2017: EUR62m) and a 25bp decrease results in an increase in value of EUR78m (31 March 2017: EUR68m).
31 March 2018
Sensitivities Impact on market value of a 5% change in the Impact on market value of a 25bp change in the
estimated rental value equivalent yield
Increase EUR 'm Decrease EUR'm Increase EUR 'm Decrease EUR'm
Office 42.2 (42.2) (52.5) 59.6
Office development 10.0 (10.0) (10.4) 11.7
Residential 7.0 (6.9) (5.7) 6.3
Industrial 0.5 (0.6) (0.4) 0.4
Total 59.7 (59.7) (69.0) 78.0
31 March 2017
Sensitivities Impact on market value of a 5% change in the Impact on market value of a 25bp change in the
estimated rental value equivalent yield
Increase EUR 'm Decrease EUR'm Increase EUR 'm Decrease EUR'm
Office 39.5 (39.4) (44.2) 48.6
Office development 12.0 (12.0) (11.3) 12.5
Residential 4.9 (4.9) (5.7) 6.3
Industrial 0.5 (0.5) (0.4) 0.4
Total 56.9 (56.8) (61.6) 67.8
18. Property, plant and equipment
Accounting policy
Owned property which is occupied by the Group for its own purposes is de-recognised as investment property at the date occupation commenced and recognised as owner occupied property within property, plant and equipment at its fair value at that date. Property used for administration purposes is stated in the consolidated statement of financial position at its revalued amount, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each accounting period.
Any revaluation increase from this property is recognised in other comprehensive income and accumulated in equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount of this property arising on revaluation is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the property's revaluation reserve relating to a previous revaluation of that asset.
Depreciation on revalued property is recognised in profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation reserve is transferred directly to retained earnings.
Fixtures and fittings are stated at costs less accumulated depreciation and impairment losses.
Depreciation is recognised to write off the cost or value of assets less their residual value over their useful lives. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
The estimated useful lives for the main asset categories are:
Land and buildings 50 years Fixtures and fittings/leasehold improvements 5 years Office and computer equipment 3 years
At 31 March 2018
Land and buildings(1) Office and computer Leasehold improvements Total
equipment and fixtures and fittings
EUR'000 EUR'000 EUR'000 EUR'000
Cost or valuation
At 1 April 2017 4,562 96 417 5,075
Additions - 65 173 238
Revaluation recognised in
other comprehensive
income 657 - - 657
At 31 March 2018 5,219 161 590 5,970
Depreciation
At 1 April 2017 (89) (40) (145) (274)
Charge for the year (101) (64) (120) (285)
At 31 March 2018 (190) (104) (265) (559)
Net book value at 31
March 2018 5,029 57 325 5,411
(1) (The Group occupies 54% of the office space in its South Dock House property. This property was revalued as at 31 March 2018 and 31 March 2017 by the Group) ('s Valuers and in accordance with the valuation approach described under note 17.)
Land and buildings, 54% of South Dock House, was revalued at 31 March 2018 and 31 March 2017 by the Group's independent Valuers. They are measured at fair value at the financial year end using a yield methodology using market rental values capitalised with a market capitalisation rate. These fair value measurements use significant unobservable inputs. The inputs used are disclosed in the table below.
Valuation inputs 31 March 2018 31 March 2017 ERV per sq.ft. EUR52.5 EUR52.5 Equivalent yield 5.0% 5.4%
At 31 March 2017
Land and Office and Leasehold Total
buildings(1) computer improvements
equipment and fixtures
and fittings
EUR'000 EUR'000 EUR'000 EUR'000
Cost or valuation
At 1 April 2016 2,725 45 243 3,013
Additions 1,651 51 174 1,876
1
Revaluation recognised in other comprehensive income 186 - - 86
At 31 March 2017 4,562 96 417 5,075
Depreciation
At 1 April 2016 (22) (13) (32) (67)
Charge for the year (67) (27) (113) (207)
At 31 March 2017 (89) (40) (145) (274)
Net book value at 31 March 2017 4,473 56 272 4,801
19. Non-current assets classified as held for sale
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at start of financial year 385 3,921
Recognised during the year 149 -
Sold during the year - (3,536)
Balance at end of financial year 534 385
Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. The Directors have assessed the fair value of these assets by reviewing the sales prices achieved on similar assets and the expected sales price as determined by the selling agent in preparing their disposal plans. Assets sold to date (since being acquired in 2014) have achieved at least their acquisition price on an individual basis and in total a profit of approximately EUR5.0m (31 March 2017: EUR5.0m) before tax and after costs has been achieved. The Directors have therefore concluded that the fair value of these assets is at least their carrying value.
The balance carried forward from 2017 contains two assets which remain from assets deemed not to be part of the Group's core business. There have been unforeseen delays in the sales of these assets but the Directors expect that the assets will be sold in the near future and are therefore retained as held for sale.
Section 4 - Financing including equity and working capital
This part focuses on the financing of the Group's activities, including the equity capital, bank borrowings and working capital. It also covers financial risk management.
All of the Group's non-equity financing is currently via a revolving credit facility which is secured on the Group's investment properties. The majority of this debt has been hedged through derivatives to protect against rising interest rates.
Effective interest method: the Group uses the effective interest method of calculating the amortised cost of a debt instrument and of allocating interest income and expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
20. Cash and cash equivalents
Accounting policy
Cash and cash equivalents includes cash at banks in current accounts, deposits held on call with banks and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
31 March 2018 31 March 2017
EUR'000 EUR'000
Cash and cash equivalents 22,521 18,148
-------------
The management of cash and cash equivalents is discussed in detail in note 29. Please also refer to note 26 on the net debt calculations. In addition, the Company holds funds in excess of its minimum capital requirement at all times.
21. Other financial assets
Accounting policy
Loans and receivables: loans and receivables (including loans to subsidiaries) are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans are initially recorded at fair value plus transaction costs. They are subsequently accounted for at amortised cost using the effective interest method.
Derivatives: the Group utilises derivative financial instruments to hedge interest rate exposures. Derivatives designated as hedges against interest risks are accounted for as cashflow hedges. Hedge relationships are documented at inception. This documentation identifies the hedge, the item being hedged, the nature of the risks being hedged and how the effectiveness is measured during its duration. Hedges are measured for effectiveness at each accounting date and the accounting treatment of changes in fair value revised accordingly. The Group's cashflow hedges are against variability in interest costs and the effective portion is recognised in equity in the hedging reserve, with the ineffective portion being recognised in profit or loss within finance costs.
31 March 2018 31 March 2017
EUR'000 EUR'000
Derivatives at fair
value 88 115
Loans carried at
amortised cost 152 152
------------- -------------
Balance at end of financial year end - current 240 267
------------- -------------
Derivatives at fair value are the Group's hedging instruments on its borrowings. The Group has hedged up to EUR244m of its revolving credit facility (31 March 2017: EUR100m) using a combination of caps and swaptions to limit the EURIBOR interest rate element of interest payable to 1%.
22. Trade and other receivables
Accounting policy
Trade receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method. Where there is objective evidence of loss, appropriate allowances for any irrecoverable amounts are recognised in the consolidated income statement.
31 March 2018 31 March 2017
EUR'000 EUR'000
Non-current
Prepaid remuneration(1) - 2,679
Property income receivables 5,681 4,066
Other receivables 2,106 1,791
Balance at end of financial year - non-current 7,787 8,536
Current
Prepaid remuneration(1) 2,679 4,444
Receivable from loan redemptions - 137
Property income receivables 2,885 4,538
Prepayments 1,077 789
Recoverable capital expenditure 416 -
Income tax refund due 102 128
VAT refundable 80 72
Balance at end of financial year - current 7,239 10,108
Balance at end of financial year - total 15,026 18,644
(1) This consists of the balance of the payment to service providers relating to the internalisation transaction.
There are no amounts past due. The non-current balance is mainly non-financial in nature; EUR0.5m (31 March 2017: EUR0.7m) relates to amounts receivable from a tenant with the balance consisting of deferred income and expenditure amounts relating to the lease incentives and deferred lease costs. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments (note 29). The Directors therefore consider that the carrying value of trade and other receivables approximates to their fair value.
23. Issued capital and share premium
Accounting policy
The equity of the Company consists of Ordinary Shares issued. Shares issued are recorded at the date of issuance. The par value of the issued shares is recorded in the share capital account. The excess of proceeds received over the par value is recorded in the share premium account. Direct issue costs in respect of the issue of shares are accounted for in the retained earnings reserve, net of any related tax deduction.
31 March 2018 31 March 2017
# of Share capital Share premium Total # of Share Share Total
shares shares capital premium
in in
issue issue
'000 EUR'000 EUR'000 EUR'000 '000 EUR'000 EUR'000 EUR'000
Balance at
beginning
of
financial
year 685,452 68,545 609,565 678,110 681,252 68,125 604,273 672,398
Shares
issued
during the
financial
year (see
below) 6,895 690 7,896 8,586 4,200 420 5,292 5,712
Balance at
end of
financial
year 692,347 69,235 617,461 686,696 685,452 68,545 609,565 678,110
Shares issued during the financial year as follows:
6,895,231 Ordinary Shares with a nominal value of EUR0.10 were issued during the period in settlement of performance-related fees giving a total recorded of EUR8.6m in settlement of fees due.
All of these shares were issued on 3 July 2017 and the associated costs were EUR14k.
Share capital
Ordinary Shares of 10 cents each:
31 March 2018 31 March 2017
# of shares # of shares
Authorised 1,000,000 1,000,000
Allotted, called up and fully paid 692,347 685,452
In issue at end of financial year 692,347 685,452
There are no shares issued which are not fully paid.
Under the terms of the agreement under which the Group internalised the Investment Manager, the Vendors are entitled to certain deferred contingent payments which are, for the most part, equivalent to the performance fees which would have been due under the Investment Management Agreement. These and other share-based payments due at 31 March 2018 amounted to EUR8.8m at the financial year end (31 March 2017: EUR9.5m) and are all payable in shares (note 11). A further 6.2m shares are expected to be issued in relation to these payments.
24. Other reserves
31 March 2018 31 March 2017
EUR'000 EUR'000
Property revaluation 1,166 509
Cash flow hedging (329) (217)
Other reserves 8,783 9,467
------------- -------------
Balance at end of
financial year 9,620 9,759
------------- -------------
a. Properties revaluation reserve
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at beginning
of financial year 509 323
Increase arising on revaluation of properties 657 186
-------------
Balance at end of
financial year 1,166 509
-------------
The Group's headquarters are carried at fair value and the remeasurement of this property is made through other comprehensive income or loss (note 18). On disposal, that portion of the properties revaluation reserve relating to the premises sold will be transferred directly to retained earnings.
b. Cashflow hedging reserve
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at beginning of financial year (217) (112)
Released to profit 58 -
and loss
(Loss) arising on fair value of hedging instruments entered into for cash flow
hedges (170) (105)
Balance at end of
financial year (329) (217)
-------------
The cashflow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cashflow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cashflow hedging reserve is reclassified to profit or loss when the hedged transaction affects the profit or loss consistent with the Group's accounting policy.
No income tax arises on this item.
Cumulative gains or losses arising on changes in fair value of hedging instruments that have been tested as ineffective and reclassified from equity into profit or loss during the financial year are included in the following line items:
31 March 2018 31 March 2017
EUR'000 EUR'000
Finance expense 104 1
-------------
c. Share-based payment reserve
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at beginning of financial year 9,467 5,925
Performance-related
payments provided 7,902 9,011
Settlement of 2017
performance fees (8,586) (5,469)
Balance at end of
financial year 8,783 9,467
------------- -------------
Other reserves comprise represented amounts reserved for the issue of shares in respect of performance-related and other payments. These are discussed further in note 11.
25. Retained earnings and dividends on equity instruments
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at beginning of financial year 325,983 218,040
Profit for the financial
year 107,101 118,586
Share issuance costs (14) (19)
Dividends paid (17,656) (10,624)
------------- -------------
Balance at end of
financial year 415,414 325,983
------------- -------------
In August 2017, a dividend of 1.45 cent per share (total dividend EUR10m) was paid to the holders of fully paid Ordinary Shares.
In January 2018 a dividend of 1.1 cent per share (total dividend EUR7.6m) was paid to the holders of fully paid Ordinary Shares. The Directors propose a final dividend of 1.9 cent per share to be paid to shareholders on 3 August 2018. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these consolidated financial statements. The total estimated final dividend to be paid is EUR13.3m (note 14).
The Directors confirm that the Company continues to comply with the dividend payment conditions contained in the Irish REIT.
26. Financial liabilities
Accounting policy
The Group has a general borrowing facility secured by a floating charge over its assets. The Company has short-term loan and debenture transactions with subsidiaries. These are measured initially at fair value, after considering transaction costs, and carried at amortised cost, with all attributable costs either charged to profit or loss or capitalised into investment property costs as appropriate. All costs are based on the effective interest rate method (see note 12).
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at beginning of financial year 171,138 72,724
Bank finance drawn during the financial year 86,454 97,877
Bank finance repaid during the financial year (39,674) -
Interest payable 1,300 537
-------------
Balance at end of financial year 219,218 171,138
-------------
31 March 2018 31 March 2017
EUR'000 EUR'000
The maturity of non-current borrowings is as follows:
Less than one year 809 192
Between two and five years 218,409 170,946
Total 219,218 171,138
The Group seeks to leverage its equity capital to achieve higher returns within agreed limits. The Group has a stated policy of not incurring debt above 40% of the market value of its property assets. Under the Irish REIT rules the loan-to-value ("LTV") ratio must remain under 50%.
The Group has a EUR400m revolving credit facility ("RCF") with Bank of Ireland, Barclays Bank plc and NatWest which has a five-year term to November 2020. The RCF is secured against a floating charge over the Group's assets. Where debt is drawn to finance material refurbishments and developments, the interest cost of this debt is capitalised.
All costs related to financing arrangements are amortised into the effective interest rate. The Directors confirm that all covenants have been complied with and are kept under review.
All borrowings are denominated in Euro. All borrowings are subject to six months or less interest rate changes and contractual re-pricing rates. In addition, the Group has entered into derivative instruments so that the majority of its EURIBOR exposure is capped at 1% in accordance with the Group's hedging policy (note 29).
Net debt and LTV
31 March 2018 31 March 2017
EUR'000 EUR'000
Financial liabilities 219,218 171,138
Add: arrangement fees 1,963 3,718
Deduct: accrued interest payable (808) (1,450)
Cash and cash equivalents (22,521) (18,148)
Amounts held for sinking funds and other prepaid income items 4,830 -
Net debt at period end 202,682 155,258
Investment property at period end 1,308,717 1,167,387
Loan to value ratio 15.5% 13.3%
Cash is reduced by the amounts collected from tenants for deposits, sinking funds and similar arrangements as this expenditure is viewed as paid for the purposes of the above calculation.
27. Trade and other payables
Accounting policy
Trade payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.
31 March 2018 31 March 2017
EUR'000 EUR'000
Current
Investment property
payable 5,118 10,083
Rent prepaid 7,313 8,589
Rent deposits and other
amounts due to tenants 1,569 2,269
Sinking funds 2,053 -
Deferred revenue 241 1,067
Trade and other payables 5,044 2,496
PAYE/PRSI payable 163 138
Balance at end of financial
year 21,501 24,642
Cash is held against balances due for service charges prepaid and sinking fund contributions, EUR3.6m (31 March 2017: EUR1.0m), and rental deposits from tenants, EUR1.2m (31 March 2017: EUR1.2m). Sinking funds are monies put aside out of annual service charges collected from tenants as contributions towards expenditure on larger maintenance items that occur at irregular intervals, such as replacement of boilers, in buildings managed by Hibernia. Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of the of trade and other payables approximates to their fair value.
28. Cashflow statement
Non-cash movements in operating profit
Note 31 March 2018 31 March 2017
EUR'000 EUR'000
Revaluation of investment properties 17 (81,377) (103,525)
Share-based payments 11 7,902 8,874
Deferred remuneration paid 9 4,444 4,444
Depreciation 18 285 207
Net finance expense 12 6,236 5,661
Income tax 13 31 450
-------------
Non-cash movements in operating profit (62,480) (83,889)
-------------
Cash expended on investment property
31 March 2018 31 March 2017
Note EUR'000 EUR'000
Property purchases 17 39,158 85,378
Development and refurbishment expenditure 17 50,185 52,479
Financing arrangement fee write-off (522) 296
Decrease/(increase) in investment property costs payable 4,966 (953)
Cash expended on investment property 93,787 137,200
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.
Fair value calculation
Asset/Liability Carrying value Level technique Assumptions
Loan and receivables Amortised cost 3 Assessed in relation to Valuation of collateral is
collateral value subjective based on agents
guide sales prices and market
observation
of similar property sales were
available.
Trade and other receivables Amortised cost 2 Discounted cash flow Only a small element of trade
and receivables are financial
in nature
Financial liabilities Amortised cost 2 Discounted cashflow The fair value of financial
liabilities held at amortised
cost have been calculated by
discounting
the expected cashflows at
prevailing interest rates.
Derivative financial Fair value 2 Calculated fair value price The fair value of derivative
instruments financial instruments is
calculated using pricing based
on observable
inputs from financial markets.
Trade and other payables Amortised cost 2 Discounted cash flow All trade and other payables
that could be classified as
financial instruments are very
short-term,
the majority less than one
month, and therefore face
value approximated fair value
on a discounted
basis
The carrying value of non-interest-bearing financial assets and financial liabilities 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, which are described as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data.
The following tables present the classification of financial assets and liabilities within the fair value hierarchy and the changes in fair values measurements at Level 3 estimated for the purposes of making the above disclosure.
As at 31 March 2018
Level Total Of which are Measured at Measured at Total financial Fair value
assessed as fair value amortised cost instruments financial
financial instruments
instruments
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Trade and other
receivables 2 15,026 2,092 522 1,570 2,092 2,092
Loans 3 152 152 - 152 152 152
Derivatives at
fair value 2 88 88 88 - 88 88
Financial
liabilities 2 (219,218) (219,218) - (219,218) (219,218) (219,218)
Trade and other
payables 2 (21,501) (3,114) - (3,114) (3,114) (3,114)
(225,453) (220,000) 610 (220,610) (220,000) (220,000)
As at 31 March 2017
Level Total Of which are Measured at Measured at Total Fair value
assessed as fair value amortised cost
financial
instruments
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Trade and other
receivables 2 18,644 4,581 754 3,827 4,581 4,581
Loans 3 152 152 - 152 152 152
Derivatives at
fair value 2 115 115 115 - 115 115
Financial
liabilities 2 (171,138) (171,138) - (171,138) (171,138) (171,138)
Trade and other
payables 2 (24,642) (5,267) - (5,267) (5,267) (5,267)
(176,869) (171,557) 869 (172,426) (171,557) (171,557)
A small amount of trade receivables relating to the recovery of fit-out costs are carried at fair value as they relate to tenant receivables that are receivable in future years.
Movements of Level 3 fair values
This reconciliation includes investment property which is described further in note 17 to these consolidated financial statements.
31 March 2018 31 March 2017
EUR'000 EUR'000
Balance at beginning of financial year 1,167,539 927,808
Transfers out of level 3 - (1,651)
Purchases, sales, issues and settlement
Purchases(1) 89,343 137,857
Sales (29,390) -
Fair value movement 81,377 103,525
Balance at end of financial year 1,308,869 1,167,539
(1) Includes development and refurbishment expenditure.
d. Financial risk management
The Group has identified exposure to the following risks:
Market risk
Credit risk
Liquidity risk
The policies for managing each of these and the principal effects of these policies on the results for the financial year are summarised below:
i. Risk management framework
The Group's Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Audit Committee is responsible for developing and monitoring the Group's risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. All of these policies are regularly reviewed in order to reflect changes in the market conditions and the Group's activities. The Audit Committee is assisted in its work by internal audit which undertakes periodic reviews of different elements of risk management controls and procedures.
ii. Market risk
Market risk is the risk that the fair value or cashflows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group has no financial assets or liabilities denominated in foreign currencies. The Group's financial assets mainly comprise trade receivables which are classified as financial assets. Financial liabilities comprise short-term payables and bank borrowings. All of these items are denominated in Euro. Therefore the primary market risk is interest rate risk. Bank borrowing interest rates are based on short-term variable interest rates and the Group has partly hedged against increasing rates by entering into interest rate caps and swaptions to restrict EURIBOR interest costs to a maximum of 1%.
Exposure to interest rates is limited to the exposure of its earnings from uninvested funds and borrowings. There were no uninvested funds from the Company's capital raises at this or the previous financial year end. Borrowings were EUR220.4m (31 March 2017: EUR173.4m). While interest rates remain at historic lows, the hedging strategy means there will not be an impact on earnings if EURIBOR rate increases over 1%. The Group's drawings under its facilities were based on a EURIBOR rate of 0% throughout the year and therefore the impact of a rise in EURIBOR to 1% for a full year would be approximately EUR2.2m (31 March 2017: EUR1.7m).
iii. Credit risk
Credit risk is the risk of loss of principal or loss of a financial reward stemming from a counterparty's failure to repay a loan or otherwise meet a contractual obligation. Credit risk is therefore, for the Group and Company, the risk that the counterparties underlying its assets default.
Cash and cash equivalents: cash and cash equivalents are held with major Irish and European institutions. The Board has established a cash management policy for these funds which it monitors regularly. This policy includes ratings restrictions, BB or better, and related investment thresholds, maximum balances of 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 Depository to ensure the security of the cash assets.
Trade and other receivables: rents are generally received a quarter in advance from tenants, except for residential which is approximately 13% of rental income and therefore there tends to be a low level of credit risk associated with this asset class. There are no concentrations of credit risk at the financial year end (31 March 2017: approximately EUR2.2m was due from a previous tenant in relation to scheduled lease break payments). The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments.
The Group has small balances in financial assets which are immaterial in the context of credit risk.
The maximum amount of credit exposure is therefore:
31 March 2018 31 March 2017
EUR'000 EUR'000
Financial assets 240 267
Trade and other receivables 2,092 4,581
Cash and cash equivalents 22,521 18,148
Balance at end of period 24,853 22,996
iv. Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient available funds to meet obligations as they fall due.
Net current assets, a measure of the Group's ability to meet its current liabilities, at the financial year end were:
31 March 2018 31 March 2017
EUR'000 EUR'000
Net current assets at the period end 8,793 3,999
The nature of the Group's activities means that the management of cash is particularly important and is managed over a three-year period. The budget and forecasting process includes cash forecasting, capital and operational expenditure projections, cash in-flows and dividend payments on a quarterly basis over the three-year horizon. This allows the Group to monitor the adequacy of its financial arrangements. At 31 March 2018 EUR179m (31 March 2017: EUR241m) remains undrawn on the Group's revolving credit facility.
Exposure to liquidity risk
Listed below are the contractual maturities of the Group's financial liabilities. Only trade and other payables relating to cash expenditure are included, the balance relates either to non-cash items or deferred income. These include interest margins payable and contracted repayments. EURIBOR is assumed at 0%.
At 31 March 2018 Carrying amount Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years Non- derivatives Borrowings 219,218 251,399 19,355 2,259 4,518 225,267 Trade payables 3,114 3,114 3,114 - - - Total 222,332 254,513 22,469 2,259 4,518 225,267 At 31 March 2017 Carrying amount Contractual cash flows 6 months or less 6-12 months 1-2 years 2-5 years Non- derivatives Borrowings 171,138 183,267 1,630 2,345 18,119 161,173 Trade payables 5,267 5,267 5,267 - - - Total 176,405 188,534 6,897 2,345 18,119 161,173 e. Capital management
The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The key performance indicators used in evaluating the achievement of strategic objectives are return on capital (growth in EPRA NAV) and dividends to ordinary shareholders (dividend per share) as well as the total return of the Group's property portfolio versus IPD Ireland.
Capital comprises share capital, reserves and retained earnings as disclosed in the Consolidated and Company Statement of changes in equity. At 31 March 2018 the total capital of the Group was EUR1,112m (31 March 2017: EUR1,014m).
The Group seeks to leverage capital in order to enhance returns. See note 26 for more details.
The Company's share capital is publicly traded on Euronext Dublin and the London Stock Exchange.
As the Company is authorised under the Alternative Investment Fund regulations it is required to maintain 25% of its annual fixed overheads as capital. This is managed through the Company's risk management process. The limit was monitored throughout the financial year and no breaches occurred.
Section 5 - Other
This section contains notes that do not belong in any of the previous categories.
30. Operating leases receivables
Future aggregate minimum rentals receivable (to the next break date) under non-cancellable operating leases are:
Financial
year ended
31 March
2018 Financial year ended 31 March 2017
EUR'000 EUR'000
Operating lease receivables due in:
Less than one year 54,680 45,773
Between two and five years 166,096 137,766
Greater than five years 150,565 162,841
371,341 346,380
The Group leases its investment properties under operating leases. The weighted average unexpired lease term ("WAULT") at 31 March 2018, excluding residential properties and weighted on contracted rents, based on the earlier of lease break or expiry date 7.3 years (31 March 2017: 6.7 years).
These calculations are based on all leases entered into at 31 March 2018, i.e. including pre-lets.
31. Investment in subsidiary undertakings
Accounting policy
Business combinations
Acquisitions of subsidiaries and businesses are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value. Acquisition-related costs are expensed as incurred.
A joint arrangement is an arrangement over which two or more parties have joint control. Joint control is established when no one entity has control of the arrangement on its own; all the entities involved in the arrangement control it collectively. Where the joint arrangement is recognised as a joint operation, the Group recognises its share of assets and liabilities held jointly as well as its share of revenues and expenses according to IFRS applicable to the items being recognised.
There were no business combinations during the period. In the prior financial year, the Company acquired a 50% holding in Windmill Lane Development Company Limited, thereby acquiring 100% of the share capital and the full ownership of 1WML and Hanover Mills apartments.
32. Capital commitments
The Group has entered into a number of development contracts to develop buildings in its portfolio. The total capital expenditure commitment in relation to these over the next one to two years is approximately EUR77m (31 March 2017: EUR95m).
33. Contingent liabilities
Accounting policy
Contingent liabilities are possible obligations depending on whether some uncertain future event occurs, or present obligations where payment is not probable or the amount cannot be measured reliably. Contingent liabilities are not recognised but are disclosed unless the possibility of an outflow of economic resources is remote.
The Group has not identified any contingent liabilities which are required to be disclosed in the financial statements.
34. Related parties
a. Subsidiaries
All transactions between the Company and its subsidiaries are eliminated on consolidation.
b. Other related party transactions
WK Nowlan Property Limited, now trading as WK Nowlan Real Estate Advisors, had one director (William Nowlan) in common with the Company during part of the financial year. During the financial year WK Nowlan Real Estate Advisors was engaged on an arm's length basis to carry out project management, agency and due diligence services across the Group's property portfolios. The fees earned by WK Nowlan Real Estate Advisors for these services were benchmarked on normal commercial terms and totalled EUR0.2m for the financial year to 31 March 2017 (31 March 2017: EUR0.8m). No amounts were due to WK Nowlan Real Estate Advisors at the financial year end (31 March 2017: EUR30k).
The Group received rent of EUR140k (gross) from WK Nowlan Real Estate Advisors during the financial year (31 March 2017: EUR140k) for the space it leases in Marine House which Hibernia acquired after the lease had been entered into. No amounts were owed to the Group from WK Nowlan Real Estate Advisors at the financial year end.
William Nowlan is Chairman of WK Nowlan Real Estate Advisors. William Nowlan is a shareholder in WK Nowlan Real Estate Advisors along with Kevin Nowlan and Frank O'Neill. As part of his consultancy agreement with the Company, William Nowlan received to EUR84k in consulting fees for the financial year ended 31 March 2018 (31 March 2017: EUR50k). William Nowlan also received a fee of EUR16k during the financial year in relation to his role as a non-executive Director. An amount of EUR25k was owed to him at the financial year end as well as the performance-related payments below.
As part of the performance-related payments for the financial year (note 11) the following payments are due:
Kevin Nowlan: EUR2.8m, Frank Kenny: EUR1.8m, William Nowlan: EUR1.4m and Frank O'Neill: EUR0.6m. (31 March 2017: Kevin Nowlan: EUR3.2m, Frank Kenny: EUR2.1m, William Nowlan: EUR1.6m and Frank O'Neill: EUR0.6m).
As part of his consultancy agreement with the Company, Frank Kenny earned EUR181k in fees for the financial year ended 31 March 2018 (31 March 2017: EUR200k). He also received a fee of EUR20k during the financial year in relation to his role as non-executive Director. These were paid in full during the financial year.
Thomas Edwards-Moss rents an apartment from the Group at market rent and paid EUR14k in rent during the financial year (31 March 2017: EUR17k).
c. Key management personnel
In addition to the executive and non-executive Directors, the following are the key management personnel of the Group:
Richard Ball Chief Investment Officer Sean O'Dwyer Company Secretary and Risk & Compliance Officer Frank O'Neill Chief Operations Officer Mark Pollard Director of Development
The remuneration of the above key management personnel during the financial year was as follows:
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR'000 EUR'000
Short-term benefits 2,381 2,121
Post-employment benefits 200 163
Other long-term benefits - -
Share-based payments 379 263
Total for the financial year 2,960 2,547
The remuneration of Directors and key management is determined by the Remuneration Committee having regard to the performance of individuals and market trends.
35. Events after the reporting period
The Directors have proposed a final dividend of 1.9 cent per share, or EUR13.3m, that is subject to approval at the AGM to be held on 31 July 2018. Other than this, there were no significant events after the reporting date.
Supplementary information
I. Alternative performance measures (unaudited)
The Group has applied the European Securities and Markets Authority (ESMA) "Guidelines on Alternative Performance Measures" in this report. An alternative performance measure ("APM") is a measure of financial or future performance, position or cashflows of the Group which is not a measure defined by International Financial Reporting Standards ("IFRS").
The following are the APMs used in this report together with information on their calculation and relevance.
APM Reconciled to IFRS measure: Reference Definition
Contracted rent roll n/a n/a 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 rental year.
EPRA cost ratio IFRS operating expenses II.e Calculated using all administrative
and operating expenses under IFRS net
of service fees.
It is calculated including and
excluding vacancy costs.
EPRA earnings and adjusted earnings IFRS Profit after tax II.a As EPRA Earnings is used to measure
the operational performance, it
excludes all components
not relevant to the underlying net
income performance of the portfolio,
such as the change
in value of the underlying investments
and any gains or losses from the sales
of investment
properties.
EPRA Earnings per share ("EPRA EPS") IFRS earnings per share Note 15 Earnings on a per share basis
II.a
EPRA like-for-like rental growth n/a II.b Like-for-like rental growth compares
reporting the growth of the net rental income of
the portfolio
that has been consistently in
operation, and not under development,
during the two full preceding
periods that are described.
EPRA NAV IFRS NAV Note 16 The objective of the EPRA NAV measure
II.c is to highlight the fair value of net
assets on an ongoing,
long-term basis. Assets and
liabilities that are not expected to
crystallise in normal circumstances
such as the fair value of financial
derivatives and deferred taxes on
property valuation surpluses
are therefore excluded.
EPRA NAV per share IFRS NAV per share Note 16 EPRA NAV calculated on a diluted basis
II.c taking into account the impact of any
options, convertibles,
etc. that
are 'dilutive'.
EPRA NNNAV IFRS NAV via EPRA NAV II.c Reports EPRA NAV including fair value
adjustments for any material balance
sheet items which
are not included in EPRA NAV at fair
value.
EPRA Net Initial Yield ("EPRA NIY") n/a II.d Inherent yield of the portfolio using
cash passing rent at the reporting
date.
EPRA topped-up Net Initial Yield n/a II.d Inherent yield of the portfolio using
("EPRA topped-up NIY") contracted rent the reporting date.
EPRA vacancy rate n/a II.f In order to encourage the provision of
comparable and consistent disclosure
of vacancy
measures, EPRA has identified a single
vacancy measure that can be clearly
defined,
Loan to value ("LTV") n/a Note 26 Net debt as a percentage of investment
property
Final and interim dividend per share Dividend per share Note 14 Number of cents to be distributed to
shareholders in dividends.
Net debt Financial liabilities Note 26 Financial liabilities net of cash
balances (as reduced by the amounts
collected from tenants
for deposits, sinking funds and
similar) available expressed as a
percentage of the value
of investment properties.
Passing rent n/a n/a Annualised gross property rent
receivable on a cash basis as at the
reporting date.
Total property return n/a n/a Total property return is the return
for the period of the property
portfolio (capital and
income) as calculated by MSCI, the
producers of the MSCI/IPD Ireland
Index.
II. European Public Real Estate Association ("EPRA") Performance Measures
EPRA performance measures are calculated according to the EPRA Best Practices Recommendations November 2016. EPRA performance measures are used in order to enhance transparency and comparability with other public real estate investment companies in Europe. EPRA has consulted investors and preparers of information in order to compile its recommendations. Using these measures ensures that the Group's investors can compare the Group's performance on a like-for-like basis with similar companies.
Further detail on these measures are set out below, including their calculation and reconciliation to the financial statements where applicable.
31 March 2018 31 March 2017
EUR '000 Cent per share EUR '000 Cent per share
EPRA Earnings - basic 19,403 2.8 14,989 2.2
- diluted 19,403 2.8 14,989 2.2
Adjusted earnings (1) - basic 32,189 4.7 26,441 3.9
EPRA NAV 1,112,075 159.1 1,013,969 146.3
EPRA NNNAV 1,111,730 159.1 1,013,852 146.3
EPRA Like-for-like rental growth reporting 6.5% 4.0%
EPRA NIY 3.8% 4.4%
EPRA "topped-up" NIY 4.3% 4.7%
EPRA cost ratio including vacancy costs 47.8% 56.0%
EPRA cost ratio excluding vacancy costs 45.6% 54.4%
Costs adjusted for internalisation(1)
Adjusted EPRA cost ratio including vacancy costs 21.8% 23.7%
Adjusted EPRA cost ratio excluding vacancy costs 19.6% 22.0%
EPRA vacancy rate 2.0% 2.7%
(1) The costs relating to internalisation are eliminated from this measure to provide indicative impacts on measures post November 2018.
a) EPRA earnings
EPRA earnings are presented as they are important for investors who want to assess the extent to which dividends are supported by recurring income.
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR '000 EUR '000
IFRS Profit for the financial year after
taxation 107,101 118,586
Exclude:
Changes in fair value of investment
properties (81,377) (103,525)
Profits on disposals of investment
properties (6,425) -
Other profits or losses on assets disposals
net of tax - (73)
Fair value of derivatives 104 1
19,403 14,989
Weighted average number of shares
Basic 688,900 683,351
Potential shares to be issued 6,599 7,603
Diluted number of shares 695,499 690,954
EPRA Earnings per share - (cent) 2.8 2.2
Diluted EPRA earnings per share (cent) 2.8 2.2
Impact of internalisation: in order to show the impact of items relating to the original external management structure and the subsequent internalisation which will, to a large extent, cease to be an expense to the Group after November 2018, EPRA earnings are shown below adjusted to remove internalisation-related costs. While the adjusted earnings number does not factor in the cost of any replacement incentive scheme, this is likely to be a significantly lower cost.
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR '000 EUR '000
EPRA earnings as calculated above 19,403 14,989
Prepaid remuneration amortised 4,444 4,444
Performance-related payments 6,599 5,907
"Top-up" internalisation expenses 1,743 1,101
Underlying earnings excluding effects of
management charges 32,189 26,441
Weighted average number of shares 688,900 683,351
Adjusted earnings per share - (cent) 4.7 3.9
b) EPRA Like-for-like rental growth reporting
Like-for-like net rental growth compares the growth of the net rental income of the portfolio that has been consistently in operation, and not under development, during the two full preceding periods that are described. Information on the growth in rental income other than from acquisitions and disposals, allows stakeholders to arrive at an estimate of organic growth. This can be used to measure whether the reversions feed through as anticipated, and whether the vacancy rates are changing. This measure excludes rental income on disposals and acquisitions and properties under development or refurbishment during the period. All rental income is from properties based in Dublin, Ireland and the greater Dublin area.
Financial year ended 31 March 2018 Financial year ended 31 March 2017
Office assets 7.1% 3.9%
Residential assets 3.3% -
Industrial assets(1) 18.4% 7.2%
Total 6.5% 4.0%
(1) A new lease on vacant space commenced during the period.
c) EPRA NAV and EPRA NNNAV
The objective of these measures is to highlight the fair value of net assets on an ongoing, long-term basis. Therefore assets which are not expected to crystallise in normal circumstances are excluded while trading properties are adjusted to their fair value. The Group presents its investment properties in its financial statements at fair value as allowed under IAS 40 and has no items not expected to crystallise in a long-term investment property business model. The fair value of derivative instruments is excluded from EPRA NAV on the basis that these are hedging instruments and intended to be held to maturity. EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations (if any).
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR '000 Cent per share EUR '000 Cent per share
IFRS NAV 1,111,730 1,013,852
Fair value of financial instruments 345 117
EPRA NAV 1,112,075 159.1 1,013,969 146.3
Fair value of financial instruments (345) (117)
EPRA NNNAV 1,111,730 159.1 1,013,852 146.3
Ordinary Shares in issue 692,347 685,452
Estimated additional shares due for
issue from performance reserve 6,599 7,603
Ordinary Shares in issue including
shares to be issued -"diluted" 698,946 693,055
d) EPRA Net Initial Yield ("EPRA NIY") and EPRA topped-up Net Initial Yield ("EPRA topped-up NIY")
EPRA NIY: this measures the inherent yield of the portfolio according to set guidelines to allow investors to compare real estate investment companies across Europe on a consistent basis, using current cash passing rent. The EPRA topped-up NIY measures yield based on rents adjusted for the expiration of lease incentives, i.e. on a contracted rent basis. The EPRA vacancy rate measures the value of vacant space expressed as a percentage of the total ERV.
At 31 March 2018
Office Residential Industrial Total Development
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Investment property at fair value 1,017,937 138,480 17,800 1,174,217 134,500 1,308,717
Less: Development/refurbishment - - (5,000) (5,000) (134,500) (139,500)
---------
Completed property portfolio 1,017,937 138,480 12,800 1,169,217 1,169,217
Allowance for purchasers' costs(1) 86,117 6,176 1,083 93,376
Gross up completed property portfolio 1,104,054 144,656 13,883 1,262,593
Annualised cash passing rental income(2) 43,836 6,816 695 51,347
Property outgoings (1,662) (1,229) - (2,891)
Annualised net rents 42,174 5,587 695 48,456
Expiration of lease incentives and fixed
uplifts 5,798 47 10 5,855
"Topped-up" annualised net rent 47,972 5,634 705 54,311
EPRA NIY 3.8% 3.9% 5.0% 3.8%
EPRA "Topped-up" NIY 4.3% 3.9% 5.1% 4.3%
(1) Purchasers costs increased from 4.46% to 8.46% on commercial properties only after an increase in stamp duty in October 2017.
(2) Cash passing rent includes residential rents gross as property outgoings are included in the line below.
At 31 March 2017
Office Residential Industrial Total Development
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Investment property at fair value 869,748 116,429 13,168 999,345 168,042 1,167,387
Less: Development/refurbishment(1) (94,350) - - (94,350) (168,042) (262,392)
Completed property portfolio 775,398 116,429 13,168 904,995 904,995
Allowance for purchaser's costs 34,583 5,193 587 40,363
Gross up completed property portfolio 809,981 121,622 13,755 945,358
Annualised cash passing rental income (2) 35,972 6,428 674 43,074
Property outgoings (614) (1,216) - (1,830)
Annualised net rents 35,358 5,212 674 41,244
Expiration of lease incentives and fixed
uplifts 2,860 - 31 2,891
"Topped-up" annualised net rent 38,218 5,212 705 44,135
EPRA NIY 4.4% 4.3% 4.9% 4.4%
EPRA "Topped-up" NIY 4.7% 4.3% 5.1% 4.7%
(1) Two Dockland Central and the 2WML were in the office segment at the financial year end but were under refurbishment at that date. Accordingly, these buildings are excluded from the above analysis along with any residual income in cash passing rent at 31 March 2017.
(2) Cash passing rent includes residential rents gross as property outgoings are included in the line below.
e) EPRA costs
EPRA costs are calculated below. A table excluding internalisation-related costs is also provided. However, some increase in remuneration costs to provide for variable remuneration for employees is anticipated after the expiry of the current arrangements and therefore the amended costs ratios are only provided to show indicative impacts on ratios post November 2018.
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR '000 EUR '000
Total operating expenses under IFRS 20,116 20,985
Property expenses 3,147 2,681
Net service charge costs/fees 205 157
EPRA costs including vacancy costs 23,468 23,823
Direct vacancy costs (1,073) (695)
EPRA costs excluding vacancy costs 22,395 23,128
Gross rental income (1) 49,075 42,519
EPRA cost ratio including vacancy costs 47.8% 56.0%
EPRA cost ratio excluding vacancy costs 45.6% 54.4%
Costs adjusted for internalisation Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR '000 EUR '000
EPRA costs including vacancy costs 23,468 23,823
Prepaid remuneration amortised (4,444) (4,444)
"Top-up" internalisation expenses for
financial year (1,743) (1,101)
Performance-related payments (6,599) (8,215)
Costs excluding internalisation effects 10,682 10,063
Direct vacancy costs (1,073) (695)
Costs excluding direct vacancy costs 9,609 9,368
Gross rental income (1) 49,075 42,519
EPRA cost ratio including vacancy costs 21.8% 23.7%
EPRA cost ratio excluding vacancy costs 19.6% 22.0%
(1) Excludes the net Starwood promote fee of EUR2.3m which was received as income.
f) EPRA vacancy rate
This provides comparable and consistent vacancy data for investors based on the independent Valuers' assessment of ERV. The EPRA vacancy rate measures the ERV of vacant space expressed as a percentage of the total ERV.
Financial year ended 31 March 2018 Financial year ended 31 March 2017
EUR '000 EUR '000
Annualised ERV vacant units 1,283 1,468
Annualised ERV completed portfolio 65,571 54,535
EPRA vacancy rate 2.0% 2.7%
Glossary
AIF is an Alternative Investment Fund
AIFM is an Alternative Investment Fund Manager
Cash passing rent is the gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews.
Contracted rent is the annualised rent adjusted for the inclusion of rent that is subject to a rental incentive such as a rent-free period or reduced rent year.
Developer's profit is the profit on cost estimated by valuers which is typically a percentage of developer's costs, usually between 10% to 20%.
Development construction cost is the total costs of construction to completion, excluding site and financing costs. Finance costs are assumed at a notional 6% per annum by the Valuers.
DRIP or dividend reinvestment plan is a plan offered by the Group that allows investors to reinvest their cash dividends by purchasing additional shares on the dividend payment date.
EPRA is the European Public Real Estate Association, which is the industry body for European REITs. It produces guidelines for number of standardised performance measures (e.g. EPRA earnings, EPRA NAV).
EPRA cost ratio (including direct vacancy costs) is the ratio of net overheads and operating expenses against gross rental income. Net overheads and operating expenses relate to all administrative and operating expenses net of any service fees, recharges or other income which is specifically intended to cover overhead and property expenses.
EPRA cost ratio (excluding direct vacancy costs) is the same as above except it excludes direct vacancy costs.
EPRA earnings are the profit after tax excluding revaluations and gains and losses on disposals and associated taxation (if any).
EPRA NAV per share is the EPRA NAV divided by the diluted number of shares at the period end.
EPRA net asset value ("EPRA NAV") are defined as the IFRS assets excluding the mark to market on effective cash flow hedges and related debt instruments and deferred taxation on revaluations.
EPRA Net Initial Yield ("NIY") is the passing rent generated by the investment portfolio at the balance sheet date, less estimated recurring irrecoverable property costs, expressed as a percentage of the portfolio valuation as adjusted. The portfolio valuation is adjusted by the exclusion of development properties and those under refurbishment.
EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations.
EPRA Topped-up Net Initial Yield is calculated as the EPRA NIY but adjusting the passing rent for contractually agreed uplifts, where these are not in lieu of rental growth.
EPRA vacancy rate is the Estimated Rental Value ("ERV") of vacant space divided by the ERV of the whole portfolio, excluding developments and residential property. This is the inverse of the occupancy rate.
EPS or earnings per share is the profit after taxation divided by the weighted average number of shares in issue during the period
Equivalent yield is the weighted average of the initial yield and reversionary yield and represents the return that a property will produce based on the occupancy data of the tenant leases.
Estimated Rental Value ("ERV") or market rental value is the external valuers' opinion as to what the open market rental value of the property is on the valuation date, and which could reasonably be expected to be the rent obtainable on a new letting on that property on the valuation date.
Fair value movement is the accounting adjustment to change the book value of the asset or liability to its market value.
FRI Lease Full Repairing and Insuring Lease
Gross rental income is the accounting based rental income under IFRS. When the Group provides incentives to its tenants the incentives are recognised over the lease term on a straight-line basis in accordance with IFRS. Gross rental income is therefore the passing rent as adjusted for the spreading of these incentives.
In-place portfolio is the portfolio of completed properties, i.e. excluding development and refurbishment projects.
Internalisation refers to the acquisition of the Investment Manager and the ultimate elimination of reliance on the external investment management function through bringing these activities inside the Group.
IPO is the Initial public offering, i.e. the first equity raising of the Company.
IPD is the Investment Property Databank Limited which is part of the MSCI Group and produces as independent benchmark of property returns (IPD Ireland Index) and which provides the Group with the performance information required in calculating the performance-based management fee.
MSCI/IPD Index is the MSCI/SCSI/Investment Property Databank Limited Ireland Quarterly Property Index-All Property (the "MSCI/IPD Index")
Lease incentive is any consideration or expense, borne by the Group, in order to secure a lease.
LEED ("Leadership in Energy and Environmental Design") is a Green Building Certification System developed by the U.S. Green Building Council (USGBC). Its aim is to be an objective measure of building sustainability.
Like for like rental income growth is the growth in net rental income on properties owned through the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either financial year or properties with guaranteed rental reviews. The Group does not present this statistic in this financial year as the last financial year was the first in which the Group held investment properties and therefore it does not have two full years of history to which to base this
Market Abuse Regulations are issued by the Central Bank of Ireland and can be accessed on https://www.centralbank.ie/regulation/securities-markets/market-abuse/Pages/default.aspx.
Long-Term Incentive Plan ("LTIP") aims to encourage staff retention and align their interests with those of the Group through the payment of a percentage of performance-related rewards through shares in the Company that vest after a future period of service.
Net development value is the external valuers' view on the end value of a development property when the building is fully completed and let.
Net equivalent yield is the weighted average income return (after allowing for notional purchaser's costs) a property will produce based on the timing of the income received. As is normal practice, the equivalent yields (as determined by the external valuers) assumes rent is received annually in arrears.
Net reversionary yield is the expected yield after the rent reverts to the ERV.
Net lettable or Net Internal Area ("NIA") the usable area within a building measured to the internal face of the perimeter walls at each floor level.
Occupancy rate is the estimated rental value of let units as a percentage of the total estimated rental value of the portfolio, excluding development properties.
Over rented is used to describe when the contracted rent is higher than the ERV.
Passing rent is the annualised gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews.
Property Income Distributions ("PIDs") are dividends distributed by a REIT that are subject to taxation in the hands of the shareholders. Normal withholding tax still applies in most cases.
PRS is the private rented sector
REIT is a Real Estate Investment Trust as set out under section 705E of the Taxes Consolidation Act 1997.
Reversion is the rent uplift where the ERV is higher than the contracted rent.
Royal Institute of Chartered Surveyors ("RICS") Professional Standards, RICS Global Valuation Practice Statements and the RICS Global Valuation Practice Guidance - Applications contained within the RICS Valuation - Global Standards 2017 (the "Red Book") issued by the Royal Institute of Chartered Surveyors provide the standards for preparing valuations on property.
Sq. ft. square feet
Tenant or lease incentives are incentives offered to occupiers on entering into a new lease and may include a rent free or reduced rent period, or a cash contribution to fit-out. Under accounting rules, the value of these incentives is amortised through the rental income on a straight-line basis over the term of the lease or the period to the next break point.
TMT sector is the technology, media and telecommunications sector.
Total Property Return ("TPR") is the return for the period of the property portfolio (capital and income) as calculated by MSCI, the producers of the MSCI/IPD Ireland Index.
Total shareholder return is the growth in share value over a period assuming dividends are reinvested to purchase additional units of stock.
Transparency Regulations enhance the information made available about issuers whose securities are admitted to trading on a regulated market and further information is available on https://www.centralbank.ie/regulation/securities-markets/transparency/Pages/default.aspx.
Under rented is the term used to describe where contracted rents are lower than ERV. This implies a positive reversion after expiry of the current lease contract terms.
Valuer is the independent valuer appointed by the Group to value the Group's investment properties at the date of the consolidated financial statements. From September 2017 the Group has used Cushman and Wakefield. Previously the Group has used CBRE.
WAULT is weighted average unexpired lease term and is variously calculated to break, expiry or next review date.
[1] On a like-for-like basis and excluding finance costs on developments
[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] Excludes refurbishment and development projects
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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